MIS - Introduction to Management Information Systems?

Introduction to

Management Information Systems

1. Introduction

2. Role and Importance Of Management

3. Process of Management

4. Organization Structure and Theory

5. Strategic Management of Business

Exercises

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CHAPTER-1

Introduction

1.1 MANAGEMENT INFORMATION SYSTEM ( MIS) CONCEPT

The concept of the MIS has evolved over a period of time comprising many different facets of the organizational function. MIS is a necessity of all the organizations. The initial concept of MIS was to process data from the organization and present it in the form of reports at regular intervals. The system was largely capable of handling the data from collection to processing. It was more impersonal, requiring each individual to pick and choose the processed data and use it for his requirements. This concept was further modified when a distinction was made between data and information. The information is a product of an analysis of data. This concept is similar to raw material and the finished product. What is needed are information and not a mass of data? However, the data can be analyzed in a number of ways, producing different shades and specifications of the information as a product. It was, therefore, demanded that the system concept be an individual-oriented, as each individual may have a different orientation. Towards the information. This concept was further modified, that the system should present information in such a form and format that it creates an impact on its user, provoking a decision or an investigation. It was later realized then even though such an impact was a welcome modification, some sort of selective approach was necessary for the analysis and reporting. Hence, the concept of exception reporting was imbibed in MIS. The norm for an exception.  

Was necessary to evolve in the organization. The concept remained valid till and to the extent that the norm for an exception remained true and effective. Since the environment turns competitive and is ever-changing, fixation of the norm for an exception becomes ka futile exercise at least for the people in the higher echelons of the organization. The concept was then evolved that the system should be capable of handling a need-based exception reporting. This need may be either of an individual or a group of people. This called for keeping all data together in such a form that it can be accessed by anybody and can be processed to suit his needs. The concept is that the data is one but it can be viewed by different individuals in different ways. This gave rise to the concept of DA ‘ABASE, and the MIS based on the DATABASE proved much more effective. Over a period of time, when these conceptual developments were taking place, the concept of end-user computing using multiple databases emerged. This concept brought a fundamental charge in MIS. The change was decentralization of the system and pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA the user of the information becoming independent of computer professionals. When this becomes a reality, the concept of MIS changed to a decision-making system. The job in a computer department is to manage the information resource and leave the task of information processing to the user. The concept of MIS in today’s world is a system which handles the databases, databases, provides com-putting facilities to the end-user and gives a variety of decision-making tools to the user of the system. The concept of MIS gives high regard to the individual and his ability to use information. An MIS gives information through data analysis. While analyzing the data, it relies on many academic disciplines. These include the theories, principles, and concepts from the Management Science, Psychology and Human Behavior, making the MID more effective and useful. These academic disciplines are used in designing the MIS, evolving the decision support tools for modeling and decision - making. The foundation of MIS is the principles of management and if its practices. MIS uses the concept of management Information System can be evolved for a specific objective if it is evolved after systematic planning and design. It calls for an analysis of a business, management views and policies, organization culture and the culture and the management style. The information should be generated in this setting and must be useful in managing the business. This is possible only when it is conceptualized as a system with an appropriate design. The MIS, therefore, relies heavily on the systems theory offers solutions to handle the complex situations of the input and output flows. It uses theories of communication which helps to evolve a system design capable of handling data inputs, process, and outputs with the lest possible noise or distortion in transmitting the information from a source to a destination. It uses the principles of system Design, Viz., an ability of continuous adjustment or correction in the system in line with the environmental change in which the MIS operates. Such a design help to keep the MIS tuned with the business management needs of the organization. The concept, therefore, is a blend of principle, theories, and practices of the Management, Information, and System giving rise to the single product known as Management Information System (MIS). The conceptual view of the MIS is shown as a pyramid in Fig.1.1.

The Physical view of the MIS can be seen as an assembly of several subsystems based on the databases in the organization. These subsystems range from data collection, transaction processing, and validating, processing, analyzing and storing the information in databases. The subsystem could be at a functional level or a corporate level. The information is evolved through them for a functional or department manager and it provides the information for the management of the business at the corporate level. The physical view of the MIS can be shown as in Fig.1.2. The MIS is a product of a multidisciplinary approach to business management. 

It is a product which needs to be kept under a constant review and modification to meet the corporate needs of the information. It is prescribed product design for the organization. The MIS differs since the people in two organizations involved in the same business. The MIS is for the people in the organization. The MIS model may be the same but it differs greatly in the contents.

The MIS, therefore, is a dynamic concept subject to change, time and again, with a change in the business management process. It continuously interacts with the internal and the external environment of the business and provides a corrective mechanism in the pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA system so that the change needs of information are with effectively. The MIS, therefore, is a dynamic design, the primary objectively. The MIS, therefore, is a dynamic design the primary objective of which is to the information for decision making and it is developed considering the organizational fabric, giving due regard to the people in the organizational the management functions and the managerial and the managerial control. The MIS model of the organization changes over time as the business passes through several phases of the developmental growth cycle. It supports the management of the business in each phase by giving the information which is crucial in that phase. Everyone has critical success factors in each phase of the growth cycle and the MIS model gives more information on the critical success factors for decision making.

1.2 MIS DEFINITION The Management Information System (MIS) is a concept of the last decade or two. It has been understood and described in a number of ways. It is also known as the Information System, the Information and Decision System, the Computer- based information system. The MIS has more than one definition, some of which are given below.

1. The MIS is defined as a system which provides information support for decision making in the organization.

2. The MIS is defined as an integrated system of man and machine for providing the

information to support the operations, the management and the decision-making function in the organization.

3. The MIS is defined as a system based on the database of the organization evolved for the purpose of providing information to the people in the organization.

4. The MIS is defined as a Computer-based Information System. Though there is a  number of definitions, all of them converge on one single the point, i.e., the MIS is a system to support the decision-making function in the organization. The difference lies in defining the elements of the MIS. However, in today’s world MIS a computerized .business processing system generating information for the people in the organization to meet the information needs a decision making to achieve the corporate objective of the organization. In any organization, small or big, a major portion of the time goes in data collection, processing, documenting it to the people. Hence, a major portion of the overheads goes into this kind of unproductive work in the organization. Every individual in an organization is continuously looking for some information which is needed to perform his/her task. Hence, the information is people-oriented and it varies with the nature of the people in the organization.

The difficulty in handling this multiple requirement of the people is due to a couple of reasons. The information is a processed product to fulfill an imprecise need of the people. It takes time to search the data and may require a difficult processing path. It has a time value and unless processed on time and communicated, it has no pdfMachine - Is a pdf writer that produces quality PDF files with ease!

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In order to get a better grip on the activity of information processing, it is necessary to

have a formal system which should take care of the following points:

 Handling of voluminous data.

 Confirmation of the validity of data and transaction.

 Complex processing of data and multidimensional analysis.

 Quick search and retrieval.

 Mass storage.

 Communication of the information system to the user on time.

 Fulfilling the changing needs of the information.

The management information system uses computers and communication technology

to deal with these points of supreme importance.

1.3 ROLE OF THE MANAGEMENT INFORMATION SYSTEM

The role of the MIS in an organization can be compared to the role of the heart in the body. The information is the blood and MIS is the heart. In the body, the heart plays the role of supplying pure blood to all the elements of the body including the brain. The heart works faster and supplies more blood when needed. It regulates and controls the incoming impure blood, processes it and sends it to the destination in the quantity needed. It fulfills the needs of blood supply to the human body in normal course and also in crisis.

The MIS plays exactly the same role in the organization. The system ensures that appropriate data is collected from the various sources, processed, and sent further to all the needy destinations. The system is expected to fulfill the information needs of an individual, a group of individuals, the management functionaries: the managers and top management. The MIS satisfies the diverse needs through a variety of systems such as Query Systems, Analysis Systems, Modeling Systems, and Decision Support Systems the MIS helps in Strategic Planning, Management Control, Operational Control, and Transaction Processing. The MIS helps the clerical personnel in the transaction processing and answers their queries on the data pertaining to the transaction, the status of a particular record and references on a variety of documents. The MIS helps the junior management personnel by providing the operational data for planning, scheduling, and control, and helps them further in decision making at the operations level to correct an out of pdfMachine - Is a pdf writer that produces quality PDF files with ease! 

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1.4 IMPACT OF THE MANAGEMENT INFORMATION SYSTEM Since the MIS plays a very important role in the organization, it creates an impact on the organization’s functions, performance and productivity. The impact of MIS on the functions is in its management. With a good support, the management of marking, finance, production, and personnel become more efficient. The tracking and monitoring of functional targets become easy. The functional, managers are informed about the progress, achievements, and shortfalls in the probable trends in the various aspects of a business. This helps in forecasting and long- term perspective planning. The manager’s attention is brought to a situation which is exceptional in nature, inducing him to take any action or a decision in the matter. A disciplined information reporting system creates structured data and a knowledge base for all the people in the organization. The information is available in such a form that it can be used straight away or by blending analysis, saving the manager’s valuable time. The MIS creates another impact in the organization which relates to the understanding of the business itself. The MIS begins with the definition of a data entity and its attributes. It uses a dictionary of data, entity, and attributes, respectively, designed for information generation in the organization. Since all the information system uses the dictionary, there is a common understanding of terms and terminology in the organization bringing clarity in the communication and a similar understanding an even of the organization. The MIS calls for the systemization of the business operation for affective system design. A well-designed system with a focus on the manger makes an impact on managerial efficiency. The fund of information motivates an enlightened manger to use a variety of tools of the management. It helps him to resort to such exercises as experimentation and modeling. The use of computers enables him to use the tools techniques which are impossible to use manually. The ready-made packages make this task simpler. The impact is on the managerial ability to perform. It improves decision-making ability considerably.

Since the MIS works on the basic systems such as transaction processing and databases, the drudgery of the clerical work is transferred to the computerized system, relieving the human mind for better work. It will be observed that a lot of manpower pdfMachine - Is a pdf writer that produces quality PDF files with ease!

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1.5 MANAGEMENT INFORMATION SYSTEM AND COMPUTER Translating the real concept of the MIS into reality is technical, an infeasible proposition unless computers are used. The MIS relies heavily on the hardware and software capacity of the computer and its ability to process, retrieve communicate with no serious limitations.

The variety of hardware having distinct capabilities makes it possible to design the MIS for a specific situation. For example, if the organization needs a large database and very little processing, a computer system is available for such a requirement. Suppose the organization has multiple business locations at long distances and if the need is to bring the data at one place, process, and then send the information to various location, it is possible to have a computer system with a distributed data processing capability. If the distance is too long, then the computer system can be hooked through a satellite communication system. The ability of the hardware to store data and process it at a very fast rate helps to deal with the data volumes, its storage, and access effectively. The ability of the computer to sort and merge helps to organize the data in a particular manner and process it for complex lengthy computations. Since the computer is capable of digital, graphic, word image, voice and text processing, it is exploited to generate information and present it in the form which is easy to understand for the information user.

The ability of a computer system to provide security of data brings confidence in the management in the storage o data on a magnetic media in an impersonal mode. The computer system provides the facilities such as READ ONLY where you cannot delete to UPDATE. It provides access to the selected information through a password and layered access facilities. The confidence nature of the data and information can be maintained in a computer system. With this ability, the MIS becomes a safe application in the Organization.

The software, an integral part of a computer system, further enhances the hardware capability. The software is available to handle the procedural and nonprocedural data processing. For example, if you want to use a formula to calculate a certain result, an efficient language is available to handle the situation. If you are not using a formula but have to resort every time to a new procedure, the nonprocedural languages are available.

The software is available to transfer the data from one computer system to another. Hence, you can compute the results at one place and transfer them to a computer located at another place for some other use. The computer system is able to configure to the specific needs helps to design a flexible MIS.

The advancement in computers and communication technology has the distance, speed, volume and complex computing an easy task. Hence, designing the MIS for a specific need and simultaneously designing a flexible and open system becomes possible, thereby saving a lot of drudgery of development and maintenance pdfMachine - Is a pdf writer that produces quality PDF files with ease!

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1.6 MANAGEMENT INFORMATION SYSTEM AND ACADEMICS

The management information system draws a lot of support from other academic disciplines too. The foundation of MIS is the management theory. It uses the principles and practices of management while designing the system, and gives due regard to the theory of organizational behavior. It considers the human mind as a processor of information. While designing the report format and forming communication channels, MIS takes into account the behavior of the manager as an individual and in a group. It gives due regard to personal factors such as bias, thinking with a fixed frame of reference, risk aversion, strengths, and weaknesses.

Another area of academics is operational research. The operational research is used for developing the models of management and they are then incorporated in the MIS as decision support systems. The inventory control, queuing theory, and resource programming are used in the MIS as decision support systems. The network theory is used for planning and controlling large projects. The application of PER / CPM to a project planning is now easily possible through the MIS support. In the area of accounting application, it uses the accounting principles to ensure that the data is correct and valid. It uses the principles of double-entry bookkeeping for balancing the accounts. It uses the accounting methodology for generating a trial balance sheet and other books of accounts.

The MIS uses the communication theory in a significant manner. The principle of feedback is used while designing analysis. Systems. While designing the report format, attention is paid to avoid noise and distortions in the communication process. The MIS further relies heavily on the decision methodology. It uses different mathematical techniques to handle the situation of decision making uses the method of the decision- making under certainty for decision- making and action. The MIS is based on database structures, viz .hierarchical, network and relational the database has roots in mathematics and the set theory. The MIS becomes rich in content and more useful when it becomes more and more a decision- making or decision- support system. The is possible when it builds decision making systems in MIS which in turn is possible if it draws tools, techniques, methods, rules, and principles from pure and applied science, and use them as an integral part of the system. The MIS draws data from its own source and uses it in the application of a variety of tools and techniques to solve the management, mathematics, and accounting. Psychology, communication theory, operations pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA research and probability theory for building processes, methods, and decision –support systems in designing business application. 

1.7 MIS AND THE USER

Every person in the organization is a user of the MIS. The people in the organization operate at all levels in the hierarchy. A typical user is a clerk, an assistant, an officer, an executive or a manager. Each of them has a specific task and a role to play in the management of the business. The MIS caters to the needs of all persons. The main task of a clerk is to search the data, make a statement and submit it to a higher level. A clerk can use the MIS for a quick search and reporting the same to a higher level. An assistant has the task of collecting and organizing the data and conducting a rudimentary analysis of integrating the data from different and disciplines to analyze it and make a critical comment if anything adverse is found. The MIS offers the methods and facilities to integrate the data and report the same in a proper format. An executive plays the role of a decision-maker. He is in of responsibility and accountability a position of a planner and a decision-maker. He is responsible for achieving the target and goals of the organization. The MIS provides facilities to analyze the data and offers the decision support systems to perform the task of execution. The MIS provides action-oriented information. The manager has a position of responsibility and accountability for the business results. His management role expands beyond his management function. He is a strategist and a long-term planner. He is a person with a foresight, an analytical ability and is expected to use these abilities in the functions of top management. The MIS provides information in a structured or unstructured format for him to react. The MIS caters to his constant changing needs of information. The user of the MIS is expected to be a rational person and the design of the MIS is based on this assumption. However, in reality the impact created on individuals by MIS is difficult to explain. The nature of the impact in a few cases is negative. However, this negative impact can be handled with proper training and counseling. It is observed that at a lower level, is a sense of insecurity. As the MIS takes away the drudgery of search, collection, writing and reporting the data, the working vacuum, so created is not easily filled, thus creating a sense of insecurity. To some extent the importance of the person is also lost, giving rise to a fear of non-recognition in the organization. pdfMachine - Is a pdf writer that produces quality PDF files with ease!

Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA At the level of an officer and an executive, the MIS does the job of data manipulation and integration. It analyses the data in a predetermined manner. This means that the knowledge of the business is transferred from an individual to the MIS

and is made available to all in the organization. This change arising out of the MIS creates a sense of being neglected for knowledge, information, and advice. The psychological impact is larger if the person is not able to cope up with this change by expanding or enriching the job and the position held by him. The manager holding a position in the top or middle management suffers from a fear of challenge and exposure. The MIS makes these competitors more effective as they have access to the information and have an ability to interpret. This leads to a situation where he is afraid that his position, decision, and defense will be challenged and maybe proved wrong sometimes. The risk of adverse exposure to higher management also increases. The effects so far pointed out are all negative and they are seen only in few cases. The positive effects on individuals at all levels are that they have become more effective operators. The time and energy which was spent earlier in unproductive work are now applied for productive work. Some are able to use their analytical skills and knowledge with the in formation support for improving their position in the organization. Managers, having improved their decision-making ability, are able to handle complex situations with relative ease. Some are benefited by improving their performance and being held in high esteem by the higher management. The enterprising managers are able to use the systems and the models for trying out an A number of alternatives in a given problem situation. The impact of the MIS on people Of the organization is phenomenal as it has made the same body of people collectively more effective and productive. The recent major technological advances in communication such as Multimedia, Imaging. Graphical User Interfaces (GUI), Internet, Web, etc. and the ability to access the data stored at different locations on the variety of hardware of platforms would make MIS more attractive and efficient proposition. Intelligent use of information can demonstrate the ability of decision making, since his manipulative capability is considerably increased, with the information now being available on his desktop. Through the MIS, the information can be used as a strategic weapon to counter the threats to business, make business more competitive, and bring about the organizational transformation through integration. A good MIS also makes an organization seamless by removing all the communication barriers.

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1) What are the scope of the information system and Management Information system?

2) Give three reasons for using a computer for MIS in the organization?

3) Designing an MIS for an organization?

4) Can you think of an MIS which could be user-independent and business dependent?

5) State the difference between MIS and a computer system.

6) Take an organization of your knowledge and give a conceptual view of MIS and physical view of MIS.

7) State which capabilities of a computer are used in MIS to create an impact.

8) Identify the nature of impact of MIS on people, organization and the management style.

9) If application science and MIS can be brought together, the MIS design would be realistic and useful. Discuss.

10)Why is MIS looked upon as a strategic need of management today? 

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Role and Importance of Management

2.1 INTRODUCTION TO MANAGEMENT 

Management, as defined by Mary Follett, is “the art of getting things done through people” A manager is defined as a person who achieves the organization’s goals by motivating others to perform – not by performing himself. Whether management is an art or science is a very subjective question. But it can be said without a doubt that modern management in the environment of technology is becoming more of a science

than an art. We define management for the purpose of Management information Systems as the process of planning, organizing, staffing, coordinating and controlling the efforts of the members of the organization to achieve commonly stated goals of the organization.

In the process of management, a manager uses human skills, material resources and scientific methods to perform all the activities leading to the achievement of goals. The management process involves a continuous resolution of conflicts of one kind or the other which affects the achievement of goals. In the management of any activity, a manager comes across human conflict, conflict of goals, between alternative resources, conflict of time, conflict of approach or method and the conflict of choice. The manager uses a variety of tools, techniques, and skills while executing the management process of planning, organizing, staffing, coordinating and controlling. An effective way of handling this process is to treat the organization as a system. Result-oriented management approaches the problem of management through the system-view of the organization.

The key concepts of the system theory used in the management are as follows:

1. A system is a comprehensive assembly of parts becoming an organization to achieve the stated goals.

2. A system is called OPEN if it has interaction with the environment and CLOSED if it does not have an interaction with the environment.

3. A system is defined, described and understood by the boundaries within which it performs.

4. The system is subject to entropy, i..e., the tendency to “ run down”. Closed systems suffer from entropy as they are cut off from the environment, while open systems interact with the environment and draw upon the support of resources to maintain a given condition.

5. Systems try to remain in equilibrium or a steady state by taking recourse to corrective action. This is possible when the system has its own feedback, i.e., an informational input about the state of the system. The advantage of viewing the management as a system is that it enables us to see the critical variables, constraints and their interaction with one another. It force pdfMachine - Is a pdf writer that produces quality PDF files with ease!

Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA the manager to look at the situation in such a way that due regard is given to the consequences arising out of interaction with the related element or subjects. The process of management explained earlier consists of steps which are relationally linked and locked with each other. In the context of the MIS, the systems approach to management is the most efficient one. The understanding of the basic principle of management theory evolved the scholars Henri Fayol, Chester Barnard and Alvin Brown is very much essential. The application of management principles in an environment, recognizing the specific situation, is the accepted practice of management. Deviating from the principle to honor the situation and at the same time not diluting the management principle is the managerial skill. The manager must have a knowledge of management theory and principle as the skill to use them in a particular environment.  

2.2 APPROACHES TO MANAGEMENT

Frederick W Taylor* is recognized as the father of scientific management. His principles can be summarised as follows :

1. Replace the rules of thump with scientific rules.

2. Obtain a harmony in group action.

3. Achieve cooperation of human beings, rather than chaotic individualism.

4. Work for maximum output.

5. Develop all workers to the possible potential for their own highest possible prosperity. Car George Barth, Henry L Gantt, Frank and Lillian Gilberth are the disciples of Taylor, who promoted the thought of scientific management. The French industrialist Henri Fayol** promoted the theory of operational management. Fall is of the view that all the activities of an industrial or a business or a business undertaking can be ____________ * F W Taylor, The Principles of Scientific Management, Harper, New York, 1911. ** Henri Fayol, General and Industrial Management, translated by Constance Storrs, London, Sir Isaac Pitman and Sons Ltd, 1949. Broken into operational functions such as technical, commercial, financial, security, accounting, and so on. He evolved the principles of operational management. These areas are given in 

Table 2.1.

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Principle Comments Division of work Authority and responsibility Discipline Unity of command Unity of direction Subordination of individual to Corporate interest Remuneration Centralization Scalar chains Order Equity Stability of tenure Initiative Efficient handling of work. Pinpoints accountability. Adherence to rules, regulations, norms, and priorities. Single source directed towards one objective. Efforts should be directed towards one objective. Ignore the individual interests for the overall betterment of the organization.

Should be fair for maximum satisfaction. Authority should be centralized just enough for control. Overgeneralization is unproductive. Chain of authority vested into the people should not be short-circuited. An orderly arrangement of men, material and other resources are necessary. Subordinates should be dealt with kindliness and justice o elicit loyalty and devotion. It is necessary to ensure that the turnover of people is controlled for stability. The initiative of subordinates should be encouraged, sacrificing personal vanity of the superior. Fayol regarded the elements of management as planning, organizing, commanding, coordinating and controlling. He believed that the operational management would succeed through the elements of management. During the same period when Taylor, Fayol, and others were concentrating on the scientific management, another group of scholars was concentrating on industrial psychology and social theory as the basis for scientific management.

Robert Owen, Rountree, Lyndall Urwick are credited to evolve the management with a focus on personal management. Max Weber, Vilfredo Pareto, Mayo Elton are the scholars who thought that productivity can be improved through social factors as morale and the satisfactory relationship between the members of the workgroup, and an effective management is possible only if human behavior and group behavior is managed through the interpersonal skills, viz, motivating, counseling, leading and communication. Hawthorne’s studies brought out the theory that man is a “Social Animal” operating in the socio-technical system and, therefore, the emphasis ineffective management is on behavioral sciences. Chester Barnard advocated the theory od system as an approach to the management. Barnard said that due to the physical and biological limitations of individuals, they cooperate in the work environment. The cooperation increases with pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA effective and efficient incentives. He further said that the cooperation is more effective if the members of the group communicate with one another, are willing to contribute to group’s action, and have a conscious common Purpose. He father said that a group of peoples in the system work as an organization is looked upon as a system of factions, a system of in a system of incentives, a system of authority and a direction and a system of logical decision making. The emergence of the modern management thought is credited to the social scientists, the behavioral scientists, the systems scientists, and the practicing managers.

2.3 FUNCTIONS OF THE MANAGER

An individual who gets the thing done is a Manager. It is necessary to distinguish between the task and the functions. While the manager may perform the task such as accounting, selling, manufacturing, purchasing, etc. These activities are called as tasks and not as functions. The activities that are performed through the managerial functions are planning, organization, staffing, directing coordinating and controlling.  Planning is a process of determining the goals and objectives and evolving strategies policies, programmers and procedures for the achievement of these goals. The essence of the process is decision making as there are a number of alternatives in each of these factors.  The organization involves evolving the structure of the people working in the organization and their roles. It specifies an authority structure and assigns activities to the people backed by the delegation of authority. Building a meaningful effective structure of authority and the relationship is known as organizing.  Staffing involves manning the positions in the organization structure. It requires defining the manpower needs per position or center of activity. It requires appropriate selection of the person or persons ensuring that they together will achieve the goals and objectives of the organization.  Directing is a complex task of implementing the process of management. In the process, the manager is required to guide, clarify and solve the problems of the people and their activities. It is necessary to motivate people to work for the goal with interest and confidence.  Coordinating is the function which brings harmony and smoothness in the various group activities and individual efforts directed towards the accomplishment of goals. It is a process of synchronizing individual actions and the efforts which may differ because of the differences in the personal goals and the common goals, the differences in the interpretation of methods and directions. It is, therefore, necessary

to undertake centrally a process of coordinating and reconciling the differences in the approach, timing, efforts, and interests towards a common goal. This task is to be carried out by the authority placed at a higher level in the organization structure.  Controlling is a process of measurement of output, comparing it with the goals, the objectives, and the target, and taking corrective actions if the output is falling short of the stated norms. Controlling ensures the achievement of the plan. The essence of control lies in good planning. It helps to evaluate the performance, highlights abnormal deviations, and guides a manager to take specific corrective actions. This pdfMachine - Is a pdf writer that produces quality PDF files with ease!

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functions and operations. While performing these functions, he resorts to the scientific approach to the management. 

2.4 MANAGERS AND THE ENVIRONMENT

All managers, whether they are managing a business, a school, a hospital, Government Department, or any enterprise, work in an environment in which the organization operates. There are a number of forces which are generated in the environment, which have an impact on the managerial performance. These forces may be from within or from outside the organization. They affect, directly or indirectly, the process of the management and a manager is required to meet these forces effectively. While to some extent the internal environment is controllable, the external environment is beyond his control. Since it is proven that the external environment also has an impact on the business manager’s performance, it is necessary to know and understand the environment. For the purpose of discussion, the external environment is classified into five classes as the economic, the technological, the social, the political and the ethical environment. Economic Environment The economic environment comprises capital, labor, price changes, productivity, fiscal and monetary policy, and customers. Capital It is required to run the organization. The enterprise needs long-term and short-term capital. The capital required can be either from the internal sources or borrowed from the financial institutions. When capital is borrowed, it is borrowed at interest. The organization is forced to borrow for various reasons and the interest charged by the lending financial institutions forms the cost of the capital. Hence management of the capital is an important aspect of the business. Labor The next important cost of a business is the cost of labor. The cost of labor is determined every two-three years by a union agreement. The settlement of an agreement is based on the cost of living index, the industry wage standards, the availability of labor, etc. These aspects are external to the organization and a manager has no control on them. pdfMachine - Is a pdf writer that produces quality PDF files with ease! 

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“Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA Price Changes occur in the economy for various reasons. The changes occur because of the decrease in the demand and supply, the changes in consumer behavior, in the consumption pattern and the money supply, and so on. The price changes affect the cost of raw material and labor and on these changes a manager has no control. Productivity Productivity is a result of the capital, labor and technology. Many a time’s an organization’s business is taken over by better technology. The costs are affected by the technology changes affecting productivity. The manager has to respond quickly to the technological changes to save the business.

Fiscal and Monetary Policy

The Government announces fiscal policies and controls them. The organization’s profit position is affected by these policies. These policies affect the credit terms, the price of the inputs and the money supply affecting the cash position of the organization. A manager has very little leverage to deal with these policy changes. Customers The customers rule the business, especially when the business operates in a buyer’s market. In a competitive world, it is very difficult to predict customer behavior.

The changes in the demands occur with growth and technology. The customer does not show a consistent preference for the product. The change in the business orientation to suit the changes in consumer demand is a difficult task for the manager. It is not always possible to predict these changes well in advance in order to take any managerial action to meet the changed situation. Technological Environment technology has a major impact on the business. It affects the business prospects, cuts down the profits and forces the management to change the course of the business operations. It requires changes in product design and promotes new concepts. It generates new business opportunities. Any change in technology changes the work culture, the methods, and the systems. It affects the speed of the operations and gives a boost to the productivity of the production systems. Examples of technological changes are seen in aviation, electronics, energy, communication, consumer goods industry, optics, medicines, and manufacturing. Social Environment The social environment is built around the attitudes, the desires, the expectations, the degree of intelligence and education, the beliefs and customs, the religion, the caste pdfMachine - Is a pdf writer that produces quality PDF files with ease!

Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA and creed of the people. The social environments are built-in centuries and hence it is deeply rooted in the society. The social environment has an important impact on the business and the organizational productivity.

Social factors create an attitude towards the work, generate the product choices, and manipulate consumer behavior. It is well known that it took a lot of time to convince the farmers in India about the use of fertilizers. It is recognized that rural marketing is different from urban marketing. In spite of technological advances, frozen foods are not finding consumer preferences. Introduction of computers in the service industry is still a difficult proposition. A number of such examples can be cited to prove that the social environment affects business and makes the manager’s task very difficult and challenging. Political Environment The political factor is the most important factor which affects the business in Indian environment. The unstable political environment brings stagnancy in business development. The changes in the ruling party bring economic policy changes, affecting the business. The sectoral preferences, such as an agricultural versus an industrial, an educational versus basic research, an investment in the service sector versus a core sector come about with a change in the ruling political party and its policies. Such changes have a long-term impact on business performance. The manager has to deal with such changes effectively.

Ethical Environment (Systems of a Moral Behavior) Some business problems arise due to failure on the ethical grounds. The government has enacted many laws and regulations to bring about harmonious operations in the business. However, some aspects of the business operations are left as ethics, called business ethics. The business ethics emerge from the professional conduct, the business norms, and codes on confidentiality, the payment, and documentation, the adherence to generally accepted standards of accounting and auditing. Business ethics is a set of norms which are universally accepted as a business behavior. All these factors discussed so far, are beyond the control of the manager. At best he can predict, assess, evaluate and take such actions which will help him to control

the situation.

2.5 MANAGEMENT AS A CONTROL SYSTEM

Planning, organizing, staffing, coordinating, directing and controlling are the various Steps in a management process. All the steps prior to control are necessary but are not necessarily self-assuring the results unless it is followed by a strong control mechanism. The management experts have viewed these steps as Management Control System. They postulate the hypothesis that unless control is exercised on the process, the goals will not be achieved. They advocate a system of effective control to ensure the achievement of the business objectives. pdfMachine - Is a pdf writer that produces quality PDF files with ease! 

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“Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA A definition of control is the process through which managers assure that actual activities conform to the planned activities, leading to the achievement of the stated common goals. The control process measures progress towards those goals and enables the manager to detect the deviations from the original plan in time to take corrective actions before it is too late. Robert J Mockler defines and points out the essential elements of the control process. The basic steps of the control process are given in Fig. 2.1. The management is a systematic effort to set the performance standards in line with the performance objectives, to design the information feedback systems, to compare the actual performance with these predetermined standards, to identify the deviations from the standards, to measure its significance and to take corrective actions in case of significant deviations. This systematic effort is undertaken through the management control system. Establish Actual Standards of Measure vs. Not O.K. Corrective Performance STD. Action The control system is essential to meet the environmental changes discussed earlier, to meet the complexity of today’s business, to correct the mistakes made by the people, and to effectively monitor the delegation process. A reliable and effective control system has the following features. Early Warning Mechanism. This is a mechanism of predicting the possibility of achieving the goals and the standards before it is too late and allowing the manager to take corrective actions. Performance Standard The performance standard must be measurable and acceptable to all the organization. The system should have meaningful standards relating to the work areas, responsibility, and managerial functions and so on. For example, the management would have standards relating to business performance, such as production, sales, inventory, quality, etc. The operational management would have standards relating to the shift production, rejections, downtime, utilization of resources, sale in a typical market segment and so. On. The chain of standards, when achieved, will ensure the achievement of the goals of the organization. Strategic Controls pdfMachine - is a pdf writer that produces quality PDF files with ease! 

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“Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA In every business there are strategic areas of control knows as the critical success factors. The system should recognize them and have controls instituted on them. Feedback The control system would be effective; it continuously monitors the performance and sends the information to the control center for action. It should not only highlight the progress but also the deviations. Accurate and Timely The feedback should be accurate in terms of results and should be communicated on time for corrective action. Realistic The system should be realistic so that the cost of control is far less than the benefits. The standers are realistic and are believed as achievable. Sufficient incentive and rewards are to be provided to motivate the people. The Information Flow The system should have the information flow aligned with the organization structure and the decision-makers should ensure that the right people get the right information for action and decision making. Exception Principle The system should selectively approve some significant deviations from the performance standards on the principle of management by exception. A standard is the control system has a set of objectives, standards to measure, a feedback mechanism and an action center as elements of the system. They need to be properly evolved and instituted in the organization with due recognition to the internal and the external environment. The system as a whole should be flexible to change with ease so that the impact of changing environment is handled effectively.

2.6 MANAGEMENT BY EXCEPTION

Pareto’s principle of 80:20 applications to the management of enterprise. Several

terms have been coined on this principle such as management by objectives;

management methodology is the management by exception. When the management

operates under time constraint, each manager has to him to attend to the situation

where his attention is necessary. Such attention would lead to an action, a decision or

a wait – and- see approach.

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If all the situations are considered in a routine manner, it consumes time and tends to

be neglected over a period of time. An efficient manager tries for selective attention

to manage within the available time resource. The principle evolved, therefore, is of

the management by exception. The exception is decided the impact a situation would

make on the performance, the process and the standards set in the management

control system.

The exception is defined as a significant deviation from the performance, or the

process and the standard. The deviation could be abnormal on a positive or on a

negative side of the standard. The deviation could be predictive or could be arising

out of random causes in the business operations. IT is, therefore, necessary to assess

whether the deviation is sporadic or consistently coming in, calling for managerial

attention. The manager is interested in knowing the significant deviation by the

yardsticks of consistency and not out of random causes. The significant deviations are

exceptional in nature and require to be attended to immediately. A manager is further

interested in knowing the reasons behind the exceptional nature of the situation. It is

possible to trace the reasons of deviation, and it is possible to take a corrective action.

The significant deviation can occur on account of wrong performance standards

and wrong management process. Many times standards are set very low and they

need to be looked in to avoid the misuse of resources. If the standards are set too

high, then the people fail to achieve them on account of de motivating factor of the

high standards.

A wrong management process refers to a variety of decisions a manager has taken in

the planning, organization, staffing, directing and controlling a given management

task. These decisions relate to the choice and the allocation of resources, the methods

of using resources, the application of the tools and the techniques, the use of

manpower by way of staffing and the manner in which the efforts are coordinated in

the organization. For an efficient and an effective management, without loss of time,

it is, therefore, necessary to report the significant deviations to the right person in the

organization. In this regard a manager himself has to provide the conditions of

exceptions in the control system so that they are highlighted and informed. The

management by exception commands grip on the management process. The

managerial effort gets directed towards the goal with the purpose of achievement.

2.7 MIS: A SUPPORT TO THE MANAGEMENT

The management process is executed through a variety of decisions taken at each step

of planning organizing, staffing, directing, coordinating and control. As discussed in

Chapter 1, the MIS aids decision making. If the management is able to spell out the

decisions required to taken in these steps are tabulated in Table 2.2.

Table 2.2 Decisions in Management

Steps in management Decision

Planning A selection from various alternatives- strategies,

resources, methods, etc.

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Organization A selection of a combination out of several

combinations of the goals, people, resources, method,

and authority.

Staffing Providing a proper manpower complement.

Directing Choosing a method from the various methods of

directing the efforts in the organization.

Coordinating Choice of the tools and the techniques for coordinating

the efforts for optimum results.

Controlling A selection of the exceptional conditions and the

decision guidelines.

The objective of the MIS is to provide information for a decision support in the

process of management. It should help in such a way that the business goals are

achieved in the most efficient manner. Since the decision making is not restricted to a

particular level, the MIS is expected to support all the levels of the management in

conducting the business operations. Unless the MIS becomes a management aid, it is

not useful to the organization. Figure 2.2 illustrates the process discussed here.

MANAGEMENT AND MANAGEMENT

INFORMATION SYSTEMS

Environment

Management

Goal Setting

.

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REVIEW QUESTIONS

1. Trace the shift in management focus, starting from Frederick W Taylor to peter

Drucker.

2. Take a task which you often do, and map the processes in the task against the

processes involved in management process cycle. Are you following all the steps

in management process cycle?

3. MIS supports a manager in his functional responsibilities. Explain.

4. List the external environment in which a manager operates. How many of tem

have a direct impact on the management process and hence should be considered

in the MIS design?

5. Explain the importance of management by exception. Can it be the only approach

in managing the business?

6. List the decision involved in each phase of management process, starting from

planning to control.

7. Explain the role of performance standard and “feedback” in effective management

of business.

8. The word management is often used with other words is such as Management of

resource, Management of capacity. Etc. Explain with example three applications

in Resource Materials and capacity management.

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CHAPTER-3

Process of Management

3.1 MANAGEMENT EFFECTIVESS

‘ Negandhi Estafen’ provides a good model ( Fig. 3.1) for the analysis of management

effectiveness which generates enterprise effectiveness in achieving the goals and

objectives. The model puts a lot of emphasis on the management philosophy and the

environment factors on which the effectiveness is dependent. The environment factors

provide the opportunities to survive and grow with certain constraints, while the

management philosophy sets the guidelines for deciding the management practices to run

the enterprise.

While the environment factors are difficult to control, it is left for the management to

change its philosophy towards the various players in the business, viz. the employees, the

consumers the suppliers, the government, the community and the shareholders. Basically,

It is a change in attitude towards these players. For example, how to look at the

employees?

If the attitude is to treat them as business partners, you will empower them and create a

sense of belonging to the organization. Such an attitude will have impact on the

management practices, where the employee will play a decisive critical role. It will affect

the organization structure by reducing its size and the reporting levels.

If the attitude towards the consumer is changed to fulfill the expectations giving rise to a

higher satisfaction, then the management practices in the product design, manufacturing

and marketing will undergo a significant change. The product life cycle will then be

short, and more features and functions will be added to the product fulfilling not only the

functional needs but also the service needs of the consumer.

The management practices therefore emerge out of the management’s philosophy and the

environment, in which it operates. The management effectiveness would largely depend

on both these factors. The MIS design would therefore, be different depending upon the

management practices followed by several organization in the same industry. Such design

improves the management effectiveness leading to an improvement in the enterprise

effectiveness.

Goals, Objectives and Targets

The process of management begins with setting of goals, objectives and targets The

goals are long- term aims to be achieved by the organization objective are relatively short

– term milestones to be accomplished, while the targets generally refer to physical

achievements in the organization’s business. The goals, objectives and targets are so set

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they are consistent with each other and help to achieve each other and help to achieve

each other. The are to be achieved within a stipulated time and failing to achieve the

same, means loss of business profit and image. The difference between these entities can

be best understood by examples in the three types of organizations given in Table

The setting of goals, objectives and targets is a top management function. It has its

implications on the business operations and profits. These are set considering the

environment and changes expected to occur in about five to six years. The organization is

expected to consider and cater for these changes and translate them into business

operations. The setting of goals objective and targets helps to pull the resources of the

organization in one direction and solve. It help to build the strategies, frame the polices

and set the rules of conducting the business. It provides an efficient measure to monitor

the managerial process. The people in the organization can have common understanding

of the purpose of the business operations.

In an organization as time progresses, business goals, departmental goals, functional

goals and personal goals emerge, which create conflicting environment in the

organization. The goals, objective and targets from a network. Achievement of targets

helps in accomplishing objective and accomplishment of objectives leads to the

attainment of goals. Careful determination of these entities is therefore essential for a

successful management process. The goals objectives and targets become reference

points for strategic planning and operations planning.

If further helps the management to identify key areas of business and key areas of

management attention. It helps appropriates and consistent business review. The

performance appraisal of the manager becomes impersonal and unbiased as it is done

with reference to achievement of goals, objective and targets. McGreor saw appraisal

against the goals and objective are necessary in every area where performance and results

directly and vitally affect the survival growth and prosperity of business”.

3.2 PLANNING

Planning is basic to all managerial functions. It is a process of selecting one course of

action from different alternatives, for achieving the stated goals, objective and targets. It

is a decision making process determining in advance what to do, when to do, how to do

what is to do. Planning creates a frame of activity and events which are to happen or a

runway for achieving corporate goals, objective and targets. Planning process demands

resource allocation through decision making. The organization may have a plan; but

question is how effective the plan is.

The efficiency of a plan is measured by the amount it contributes towards achievement of

goals. The plan is efficient the goals with less investment or with less resources

Therefore, efficient planning involves selecting a plan among several alternative plans.

An efficient plan enables the management to handle uncertainty and risk in the business.

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It helps to handle the change occurring in the environment and affecting the plan itself.

Planning helps to make operations economical as it continuously evaluates the costs and

outputs and forces optimum use resources. It further helps to control business operations

at all levels with

Common reference to goals, objectives and targets.

Planning is a process and hence it has a methodology. The first step in planning

forecasting the environment, in which the plan is to be made and operated. Forecasting

provides information on population, growth price trends, market changes, and new

opportunities, changes in technology the plan will be developed and implemented.

The second step in planning is determining alternative courses of action. The

management’s ability lies in creating a number of alternatives. The effective way of

creating a number of alternatives is to build models of the situation and use it as a tool for

the generation of alternatives. These models. Are known as system models, operational

research model and mathematical models. Consequent o the development of alternative

courses of actions, the necessity is to analyze the feasibility of each. As, a modek can

give infinite alternatives, only some of them can be feasible in the given conditions and

constraints. The constraints may be man-made or environmental; but they affect the

feasibility of the action. Evaluating the feasibility of each alternative brings the infinite

number of alternatives to a limited number.

The third step in the planning process is to evaluate the best among all the feasible

alternatives. The analysis and evaluation is done with reference to the objectives such as,

minimization of cost, maximization of profit, yield, and productivity, etc. The right

choice of an objective is a crucial factor in the selection process. The planning begins

with the setting of goals and objectives and ends up in selecting the most rational course

of action.

As mentioned earlier, the organization has a network of goals, objectives and targets. It is

necessary to develop the network of plans corresponding to this network. The process

leads to the development of corporate plans, investment plans, marketing plans, and

advertising plans. Normally, the corporate plans are for a longer period and the derived

plans are for shorter periods. Since the plan has a commitment to time, it is necessary to

build a flexible plan capable of undergoing a suitable change to alter the goals and

objectives within the same time. The flexibility, as possible, should be built in, so that the

cost of changes is not very high and the implementation is still possible without loss of

time. The implementation of plans is made through developing the strategies, policies,

systems, rules, procedures, programmers and the budgets. The strategy shows the

direction, focus, emphasis and development of resources. Many a time’s good plans fail

because of strategic failure. The purpose of the strategy is not to outline a precise method

of implementation; but to provide a boost or thrust to the plans of implementation. An

appropriate strategy helps to cut down the use of resources and accelerates the process of

achieving the goals.

The policy is a statement of management which stands on the top of all plans or courses

of action. A rational plan or a decision can be rejected on the premise of policy .The

policies are evolved in the wider frame of strategies and are generally not questionable;

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but these can be changed. For example, the organization can have a policy of recruiting

personnel only with the qualification of MBA or it may have a policy of changing the

prices once a year and not too frequently. The policy, therefore, is a general guideline and

is to be followed by all.

The system is a vehicle for the implementation of a plan. The system provides pathways,

gates and structures for communication and control. The strategies and policies are

important for successful implementation of the plans. Depending upon the plans, systems

will be built as closed or open systems. The rules, procedures and programmers help to

implement the operational plans. They provide a common basis and an understanding of

conducting business operations. A strict adherence to the rules and the procedures builds

discipline in the organization. A smooth implementation of the plan calls for the rules,

procedures and programmers to be observed properly. When the organization becomes

bigger, the adherence to rules procedures and systems brings a higher degree of

formalization in the process of implementation.

The effectiveness of the plan depends on how it is implemented. A successful

implementation requires appropriate timing of launching the basic plan and its

derivatives. Lack of knowledge creates the problems of going away in a totally different

direction. The plan must be evolved by people who are going to implement it. Their

participation brings their involvement and commitment to the plan. For effective

planning, participation should be encouraged.

An effective planning should begin at the top and flow down the line. The effectiveness is

brought in by taking a series of decisions, committing resources, giving directions, and

executing controls to achieve the goals and objectives. The process planning, therefore, is

to develop the alternatives based on some choice about goals. It the situation is that of

uncertainty, then the evaluation is done through risk analysis ad preference theory using

utility as criteria.

3.3 ORGANISING

Organizing is an important step in the managerial process and relates to the people in an

enterprise. It deals with a quantitative and a qualitative aspect of manpower in terms of

placement, the roles they and the relations amongst them, with the aim that they work

together effectively towards accomplishing the goals, objectives and the targets of the

organization. In essence, it deals with organizing the manpower resources for a given

plan of execution.

The organization could be formal or informal. The organization is formal when the roles,

the relations of the people and the objectives they should achieve well defined. In an

informal organization, it is left to the people to understand and evolve suitable roles and

relationships to achieve the objectives.

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While creating the organization is given to an appropriate splitting of the enterprise

activities, by way of function, and grouping them in such a way that they form a division,

a department, a section or a formal group. The people heading these entities should have

enough authority to decide, and should exercise a discretion in using the authority. The

people should and the members of the structure of roles and relationships that it is

designed to work effectively and the members of the structure are able to contribute

substantially towards the achievement of goals. The structure would be productive, if it is

manned properly. The process of manning involves selecting people in right number and

placing them at appropriate levels.

Peter Drucker recommends three ways to determine the structure:

 Activity analysis,

 Decision analysis, and

 Relations analysis

Organizing is a process by which the manager can bring a smoothness of operations, by

way of conflict resolution, assigning work responsibility, and creating appropriate work

environment of teamwork while deciding on the process of organizing. There are certain

important factors to which attention should be paid and which are discussed as follows.

Organisation Levels and the Span of Control

This factor deals with grouping the people in hierarchical form, determining the levels in

the organization. The levels get determined by the spa of control, i.e., in the organization

how many subordinates a superior can mange. This number can vary anywhere between

four to eight in higher levels of management and eight to fifteen in lower levels of

management to be taken, and the strengths and weaknesses of the people and the degree

of the delegation of the responsibilities that a superior is willing to attain. The span of

control can be increased and the number the levels can be brought down by training the

subordinates, precise planning, use of objective standards, effective communications and

formalizing the administration by way of rules, programmers and policies.

Departmentation

Departmentaton is a process of breaking an enterprise into smaller groups and levels.

There is a number of ways t break the enterprise. A widely accepted is by functions of the

enterprise, viz., Marking , Production, Finance, Personnel, Materials, etc. The second

method is based on geographic area distribution. This method is resorted to when the

distances are long, the activities are many and the decision making is decentralized.

Many organizations have divisions, branches and territories through which the business

operations are conducted.

The third method to department is by way of the product or the services the organization

is providing. The department of the organization brings operational convenience, creates

appropriate responsibility centers, facilitates a formal and an informal communication,

permits an evaluation of activities by a smaller group, and provides control and decision

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points for the top management. Each method of a departmentalizing has advantages and

disadvantages and, therefore, it is to be chosen based on the needs of the management.

Relations of Line and Staff Functions

The function of a department can be as a line or a staff. The functions which have a direct

responsibility of achieving the targets for production or sales are line functions. The staff

functions are those which do not participate directly in the activity but aid line functions

to achieve the targets. Production Planning, Marketing, Purchasing, etc, are staff

functions. The distinction is more clear and precise at higher levels. The staff function is

advisory but owns the responsibility for the results and is accountable for nonperformance.

The relationship between the line and the staff functions is always strained. The

performance of the line function depends upon how the staff function has planned the

activities. Deficient planning leads to an initialization of line capacity and non attainment

of targets. A line function does not have resources, leverages and powers to overcome the

problems arising out of the staff functions.

Delegation of Authority

The function either is a line function a staff function; but still it requires decision making.

As one person cannot plan, execute and control all the tasks in the functions, owing to the

limitations of time and capacity, it is necessary that the decision making is not centralized

at one point.

Handing over limited authority of decision making to the subordinated is called

delegation. The concept of delegation is based on the premise that an individual can take

decision if supported by information, knowledge and guidance, and is motivated enough

to perform. The concept of delegation accepts the responsibility of non-performance of

the delegated person or the mistakes made by him. Hence, most routine types of decisions

are delegated with the support of rules, conditions and the method of decision making.

The failures in delegation occur not because of the lack of understanding of the principle

of delegation, but because of the inability to implement it into practice. A lot depends

upon the ability of the manager to delegate and upon the capabilities of the subordinates

to use the authority. The manager is not able to delegate, if he does not have a positive

attitude towards delegation, if e is not receptive to the subordinates’ ideas and is not

welling to accept the risk of failure or mistake of his subordinates. A failure to use the

delegated authority emanates from a lack communication, guidance, training and

motivation.

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Towards Effective Organisation

Organisation is an activity of building a structure of roles and relations of the people to

secure coordination of individual efforts to achieve common stated goals, objectives and

targets. The failure in organization occurs due to the failure to plan properly, to delegate

the authority and due to the confusion of relation and authority. The failure also occurs on

account of imbalance in the line and staff function and their relation. Organisation

becomes effective, if it is designed for the unity of goals and objectives with precise

planning and optimum span of control. It becomes further effective, if it works on the

principle of command, delegation and parity of authority and responsibility. It becomes

productive if it flexible enough to change and is headed by a manager with leadership

qualities.

3.4 STAFFING

The function of staffing deals with manning the enterprise as per the organization

structure so that they together implement the process of the management. Staffing

involves not only selection of a person but also appraisal and development so that they

perform their designated roles. The selection of a person is a difficult task. However, the

chances of selecting a wrong person are very less if a proper method is used. Since

people cannot be easily replaced because of socio-political and legal reasons, their

selection, in terms of quality and, is of paramount importance.

Staffing of enterprise should be for todays as well as that of the future. The requirement

of the future is difficult to predict in precise and this requirement needs to be forecasted

for more than five to six years. So the purpose of staffing is not manning for the current

plan of business but to create a manpower potential capable of undergoing development,

so that the same manpower is able to perform the changed roles in the future.

Hence the selection of a person in terms of age, qualification and potential becomes an

important task in human resource development.

The selection of individuals for line functions is not that difficult because the role and the

asks are well defined and do not undergo any significant change over a period of time.

The difficult lies in the selection of management positions. The manager is a multifaceted

personality. A person is said to have good managerial potential, if he has the

following qualities apart from the function knowledge.

 The person must have the desire to manage.

 He must have the necessary drive and self- motivation to manage.

 He must be able t identify himself with the corporate goals and be committed to

them.

 The person must have the capability of applying knowledge to real life situations

in the right perspective, locating the problem areas and generating a number of

alternate courses of action. In short, he must be a person with analytical ability.

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 The person must be able to perform effectively. This is possible only if he has the

ability to communicate effectively. If not properly communicated, his ideas and

management plans cannot take off. For good communication skills, the person

must have a good command but due to the psychological barriers he cannot

communicate. These barriers come on account of personality conflicts, power

game and dissatisfaction on rewards and promotion.

 The manager must be a person of integrity.

 He should be honest, trustworthy and high achiever. This can be judged by the

track record of the person and his work experience and the extra curricular

activities he may be performing.

The staffing, therefore, deals with creation of human resource in the enterprise to achieve

goals, objectives and targets set by the top management.

3.5 COORDINATING AND DIRECTING

After organizing the resources and staffing the planned activities, the business plan is

launched. The process of implementing the plan is dynamic. It calls upon the manager to

perform a number of things in a coordinated manner so that the plan remains valid and

the development takes place as per the plan.

The process meets with a number of difficulties and the manager is supposed to resolve

them. There will be a lag and lead in many activities. There could be shortfalls and

overruns. There could be sudden developments which may disturb the plans and the

process of implementation. The manager’s role, in this situation, is to coordinate all the

activities and provide leadership to the group to keep the plan moving. Directing and

leading are the methods, whereby the subordinates are lead to understand the purpose of

the activity, and by way of guidance, a direction is given to them to march towards the

goals. Their difficult and conflicts are resolved, bottlenecks removed and a clear path is

created to progress on plan achievement.

The task of directing and leading becomes more effective if the human side of the

enterprise is taken care of by motivating the people. The manager is required to create an

environment in which everybody can perform their best. The work environment becomes

conducive to good performance if work becomes satisfying and provides an opportunity

to expand the scope of work and his influence.

The manager is a leader if he possesses the art of influencing the subordinates in such a

way that they willingly perform towards the achievement of the goals, objectives and

targets. The process of coordinating and directing takes place through communication.

Good communication has been defined by the American Society of Training Directives

as an interchange of thought or information to bring about mutual understanding and

confidence or good human relations. The coordinating and directing effect is more

effective if the manger is able to motivate the subordinates and provide leadership by way

of an affective communication.

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3.6 CONTROLLING

The last but the most important step in the process of management is controlling, the

successful execution of management plan. Without control, the process becomes

unproductive. The purpose of control is to regulate the process in such a way that the

management process continuously strives for the achievement of the goals, objectives and

targets.

The control is exercised through a system. The system measures the performance of the

management in terms of some predefined measures of output. It compares the output with

the standard, identifies the deviations from the standard, and corrects the management

process to ensure that the plan continues to be effective in terms of achieving goals,

objectives and targets.

The control system work on the principle of feedback. The feedback on the performance

should be quick without any loss of time, that corrective action can be taken immediately.

The process of correction involves change in the plan, reallocation of resources,

application of new system, procedures and rules. The best control is the one which brings

the process back into operation on the main track without outside intervention. The

control system must get into action automatically to correct the midstream adverse

development.

Time is the essence of control. If the corrective action is taken late on account of delayed

feedback, it is ineffective and may result in heavy losses. Most of the managers look for

real time control system, a system which provides an instant negative feedback from the

standard and an instantaneous corrective action without any time delay.

Since the management control systems are not physical system, where one can desire real

time control mechanism, the managers look for feed forward control. The feed forward

control gives an advance warning, an indication that the deviations are likely to occur in

near future calling for a corrective action. The techniques used in the feed forward

control are forecasting, trend analysis and judging the performance from the standpoint of

input versus output.

Auditing is also a tool of control. There are several types of audits possible in a business

organization. Managerial audit deals with how effectively the plans are made and

implemented. It is addressed to the managerial performance to judge whether it was up to

the mark, and whether there are any lapses, failures or weaknesses. The operational audit

deals with an adherence to the rules and the policies of the management. It identifies

whether the operations of the organization are being carried out as per the managerial

directives, rules and policies. The financial audit addresses the business and financial

transactions to find out whether they are carried out with due regard to the accounting

principle and statutes. It also examines whether all the transactions are covered

completely and for the year.

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With the advancement of information technology and computers, a variety of planning

and control tools have been developed. Planning and budget models, financial models,

risk analysis models, PERT/ CPM, operations research models are some of the examples

of the control tools.

3.7 MIS: A TOOL FOR MANAGEMENT PROCESS

The process of management requires a lot of data and information for execution of the

plan. This requirement arises on account of that in each step of management, a variety of

decisions are taken to correct the course of development. The decisions or actions are

prompted due to the feedback given by the control system incorporated in the

management system. The control of overall performance is made possible by way of

budget summaries and reports. The summary showing sales, costs, profit and return on

investment throws light on the direction the organization is moving to. The exception

reports identify the weaknesses in the system of management.

If effective management system is to be assured, it has to rest on business information.

The management performance improves if the business risk and uncertainties are handled

effectively. If the information provided is adequate, one can deal with these factors

squarely. The information support improves the lack of knowledge, enriches experience

and improves analytical abilities leading to better business judgment. So, if efficient

information support is to be provided, it calls for a system with the goals of generating

management information. A good MIS must furnish information to the managers to

expand their knowledge base. He must know the adverse trends in business, the shortfalls

and failures in the management process.

The MIS should provide the support to act and decisively. It should support management

in terms of basic business information at the corporate level and meet the specific needs

of the managers. It should highlight on the critical success factors and support key areas

of management. MIS should have, wherever possible, support systems to help the

manager in decision making.

Modern management systems rely on MIS. The complexity of business operations with

skill and foresight to avert the crisis. Modern business management requires shift from

the traditional controls to managerial control. The shift requires the manager to become

more efficient in handling the he is entrusted with. The manager becomes more efficient

if he is well informed, made richer in knowledge, experience and analytical skills and is

able to face the uncertainties and the risk of business. This is possible only if he is

supported by MIS in his specific task of management of business.

Modern business has business has become more technology- oriented wherein the

manager is required to be up- to- date on technological advancement not only in his field

of operations but also in the other technologies . The emerging new technologies are

posing threats to current business and are opening new opportunities for new business

ventures. The manager has to keep himself abreast on the information of how these

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technologies affect his business prospects. A good MIS designed for such a support is

absolutely essential. MIS therefore, is a tool for effective execution of the management

process.

__________ REVIEW QUESTIONS

1. Explain how management practices are influenced are influenced by the

Management philosophy.

2. Explain how practices change with the change in the environment.

3. Show the relationship of organization effectiveness to management effectiveness.

4. Can you state goal, objective and targets which you have set for career

management? What is the qualitative difference between them?

5. Can attitudes be changed? What role can MIS play in this endeavor?

6. A plan without a strong control feature is destined to fail. Why?

7. Where should be the control system strong – in feedback loop or in measurement

of standards?

8. Distinguish between top management plan, middle management plan and

operations management plan in terms of goal scope and content.

9. The manager has a leadership role to play. How can MIS support this role?

10. Is it necessary that management should be efficient or effective, or both. Can

management afford to be one and not both?

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CHAPTER-4

Organisation Structure and Theory

4.1 BASIC MODEL OF ORGANISATION STRUCTURE

The word organization means two things. The first meaning of the word

organization is an institution or a functional group. A business organization a hospital, a

school a university is some such institution keeping in view the concept of division of

labor, authority, responsibility and decision making so that the institution as a stable

system, works coherently towards the achievement of goals.

.the level at which a person is holding position. The authority is measured on the basis of

command on control of resources, the risk of business, and the decision making power to

manage the risk and reward. When the authority. Is distributed in a vertical order in terms

of levels, the organization is built on the principle of hierarchy of authority. The

effectiveness of the authority is based on the span of control, i.e., the number of person

being managed and controlled by a person. Depending on the organization, and business,

the span may differ from four to seven. The span outside this range has proved to be

unproductive and inefficient.

The organization structure is built by arrangement of organizational subsystems. The

organization structure is built on four basic principles, viz. hierarchy of authority,

specialization, standardization or formalization and, centralization. The structure is built

to achieve goals and objectives fitting into the environment. The structure built on any

principle shows division of work, managerial and non- managerial manpower allocation

as well as flows of decision responsibility and exchange of information.

Hierarchy of Authority

The authority rests with the individual in the organization. The degree and strength of

authority depends on the level at which a person is holding position. The authority is

measured on the basis of command on control of resources, the risk of business, and the

decision making power to manage the risk and rewards. When the authority is distributed

in a vertical order in terms of levels, the organization is built on the principle of hierarchy

of authority. The effectiveness of the authority is based on the span of control, i.e., the

number of persons being managed and controlled by a person. Depending on the

organization, and business, the span may differ from four to seven. The span outside this

range has proved to be unproductive and inefficient.

Speciallsation

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The second principal of building organization structure is specialization. Specialization

can be decided in a number of ways, arranging all similar and associated tasks under one

head. For example, a business organization can be structured on the specialization such as

Manufacturing, Marketing, Accounting and Personal. A hospital can be structured on the

basis of specialization such as General Medicine, Surgery, function, helps to select right

people and group them properly, aids in functional planning and control of the activities

of the organization.

Standardisation (Formalization)

The purpose of standardization or formalization is to make a person in an organization

independent, whereby the interaction between the individuals in the organization is

minimum. The people work on the basis of rules. Procedures, systems, guidelines and

policies. If the degree of such specialization is very high a person can supervise more

number of people. In other words, it affects the of control. Favorably. With

specialization, the delegation of work and its control has become easier. Where

standardization is not possible owing to the nature of business, the risk in business and

decision making complexity span of control is reduced as the number of people handle

similar range of operations. Requirement of manpower then increases making the

organization top heavy.

Centralization

Centralization refers to the location or position where the decision-making centre is

localized. In a highly centralized organization, the decision making is at the top and in a

decentralized organization; it is delegated down the lien in the organization hierarchy.

When business risks are high and difficult to manage, the organization emerges as

centralized.

The organization is structured on the basis of the above four principles. The blend of

these principal is decided on the nature of business, risk of business, size of business,

management style and the environment of business. The blending of these principles

would undergo a charge as the business grows. The organization is under a continuous

process of change to meet the changing needs of business, the organization will have a

different structure in its various business stages namely, inception, growth, maturity, and

decline. The structure of organization affects organizational productivity, individual

performance, growth of human resource, and the manpower itself. A considerable amount

of saving in manpower and overhead expenses is possible, if the organization is property

structured to the business needs and towards fulfilling the objectives.

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Independent of the blend of these principles, the effectiveness of the structure largely

depends on the quality of people – ability, skills, knowledge attitude and motivation. The

basic model of the organization structure is shown in Fig. 4.1 it shows the arrangement of

the people in a reverse tree structure.

The basic model will have more levels if the size of the organization is very large. The

number of levels will be determined on the basis of the span of control and the nature of

work. The appropriateness of the structure can be decided based on the factors like

responsibility and authority, economy in conducting the business, the ability to achieve

the goals and objectives, a smooth flow of information exchange and communication.

There are four variations of the basic model which are widely used in real life.

4.2 MODIFICATIONS TO THE BASIC MODEL OF ORGANISATION

STRUCTURE.

There are four modifications to the basic model of organization as under.

1. Functional; 2.Product / Market / Service; 3. Project; and 4. Matrix.

Functional Organisation

The functional organization (Fig. 4.2) is most suitable where the organization business

can be split into clear divisions of activity and all of them are equally important. For

example, the business organization can be functionally organized into four or five

functions such as marketing manufacturing, finance, personnel, and materials.

Fig. 4.2 Functional organization (Emphasis on functional Management)

The strength of the people and the hierarchy in each of the functional organizations

would vary depending upon the size and the number of activities. Decision making in any

functional organization is at the level of the functional head with accountability to the

chief of the organization. The implications of the decisions are largely on the functions

themselves. A decision affecting other functions of the business, however, is referred to

the top management. The in formation flow is from the top to the bottom and in the

reverse order. The information flow across the functions is not expected. Accumulation

of information is at the chief executives level and is shared by the others.

The functional organization is most suited where each function is a specialty and calls for

an expertise in the field; and where coordination is of a very low order and can be

handled easily through the management process. The organization works efficiently when

the business is stable and is expected to grow in a steady manner. When the business

becomes competitive and develops threats to its growth, the functional structure

undergoes a change. The development of people is on the specialized functions and hence

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they are not equipped to handle other functions if required. The people in a functional

organization develop a narrow outlook restricted to their own functions and

responsibilities. The corporate culture is difficult to imbibe in a functional set- up. Most

of the manufacturing, selling organisanisations in their initial period are structured on the

functional lines. The government departments and agencies are organized on the

functional principle.

Product / Market / service Organisation

When the organization grows large in turnover and strength, and when the decisionmaking

relates to either the product or the market or the service the organizing structure

is built around one of these factors. In this structure (Fig.4.3), the total responsibility rests

with the product / market / service head. He is expected to take all the decisions regarding

finance material, etc. The people in the organization report to the product head.

MANAGING

DIRECTOR

PRODUCT PRODUCT PRODUCT

A B C

MANUFACTURING PURCHASE SALES FINANCE

Flg. 4.3 Product Organisation (Emphasis on Product Management)

The decision making in this structure is faster and to some extent centralized. The inter

functional conflicts are avoided resulting in speedy business progress. In this structure,

people work more for product goals then the corporate goals. The contribution to profit

by product can be easily measured as profit is earned by product business unit. In this

structure, the manpower requirement is higher and the people develop specializations in

the specific technology and management.

A project organization (Fig. 4.4) is a special case of product organization where the

common service like finance, purchase etc. are organized at the functional level. But

project resources are allocated to the project manager. Since the business resources. This

type of organization structure helps in making quick decisions for project control in terms

of cost resource and time. In a project organization some of the functions are of corporate

responsibility and some of them are the project manager’s responsibility.

MANAGING

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DIRECTOR

PROJECT PROJECT MANU PURCHASE

FINANCE

DIVISION- A DIVISION- B FACTURING

DESIGN COMMIS DESIGN ERECTION COMMISSIONING

ERECTION PERSONNEL

Fig. 4.4 Project Organisation (Emphasis on Project Management).

In a project business, the activity is one at a time and has implications on the

subsequent activities in the project. Therefore, any problem or conflict relating to

the activity needs to be resolved immediately. This calls for quick decisions. This

is possible by organizing all the functional resources under one command of the

project manager.

Matrix Organisation

In all the three organization structures discussed so far, the communication

protocol is vertical in the hierarchy. The information flow is within the hierarchy.

The lateral communication between the functions is not permitted. In a matrix

organization (

(Fig.4.5) a vertical as well as a lateral communication and information flow is

allowed. The matrix organization integrates functional responsibility with product

responsibility. It is a combination. Of the functional and the product organization

structure. A product manager is responsible for the total performance of the

product and he will have the production manager, the marketing manager, the

accounts manager as his counterparts in the manufacturing, marketing and

accounting functions respectively. These functional managers report to the

functional head vertically and the product manager laterally.

The matrix organization structure is used in big companies having diverse

business activities. The business units, known as strategic business units, are

organized with a unit head at the top. The structure enjoys the advantages of a

functional as well as of a product organization. It should be noted be noted that

the organization structure is a dynamic model. It is effective for the purpose it is

set to fulfill under certain conditions. The moment the business conditions

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change, the structure should undergo a suitable change. The structural change

does not limit them from one type to the other but many other qualitative changes

are also desirable.

MANAGING

DIRECTOR

MANUFACTURING FINANCE PERSONAL MATERIL

PRODUCT PRODUCTION FINANCE PERSONAL MATERIALS

MANAGER-A MGR- A MGR- A MGR- A MGR- A

PRODUCT PRODUCTION FINANCE PERSONAL MATERIALS

MANAGAR-B MGR- B MGR- B MGR- B MGR- B

Fig. 4.5 Matrix Organisation (Emphasis on Product / Functional

Management.)

There has to be a change in the people in terms of strengths, skills and abilities. A

functional head in the functional organization may not be suitable to shoulder the

responsibility of the Product Manager in a product organization structure, because

of inherent limitations of narrow specialized experience as a functional head.

With the standardization and formalization drive in the organization, the span of

control can be enlarged than before. With the delegation of authority, backed by

the rules and policies the junior level personnel become more knowledgeable,

experienced and capable of shouldering higher responsibility. This would affect

the levels in hierarchy.

4.3 ORGANISATIONAL BEHAVIOUR

Though an organization is structured according to the goals and objective to be

achieved the actual performance is at variance for various reasons. There are some

factors, beyond the control of the management which affect the performance of the

organization. However there are some factors which relate to the organization

(independent of the type of structure). The behavior of the organization is a result of the

following factors:

1. Organizational Culture; 2. Organizational Power; 3. Organizational Change; 4.

Organizational Learning; and 5. Organizational Motivation.

ORGANISATIONAL CULTURE

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The cultural is a set of attitudes, beliefs, values, norms and understandings; the people

have in the organization. The culture is a collective behavioral result of the people who

man the organization. Depending upon the person, whether he is a manager, an officer or

a worker, the cultural pattern emerges and it is known as a managerial culture and a work

culture, etc. Long-term performance and managerial actions depend on the managerial

culture and the achievement of the targets depends on the work culture.

Let us take an example of quality of product which a particular organization

manufactures and markets. The attitude of the employees towards quality must be

positive and it must be seen in the organization in all the activities. Unless the attitude is

positive, it cannot be seen in the product as desired. The employees must believe and

show a concern towards quality. They commitment towards the achievement of quality

will come only if a high value tag is reserved for quality by the employees.

Above all, the organization must have norms of quality set in all its activities and they

must be understood by all the employees. When the organization has these factors set at a

high level, we say that the organization has a quality culture. Such a culture will be

reflected in the behavior of the organization.

The culture may be reflected in the philosophy, policy, strategy, goals and managerial

style of the organization. If the organization culture is generating a behavior which

affects the performance adversely, it can be changed by management actions such as

training, education, creating awareness, transferring people, encouraging young

recruitments and talent in the organization.

ORGANISATIONAL POWER

The organizational power is the ability of the organization structure to use human and

material resources to achieve the stated goals and objectives of the organization. The

power of the organization is distributed uniformly all over the organization but it may be

concentrated in small groups representing a function, a department or a section. It might

be localized with the individuals.

Some individuals by virtue of their position, responsibility and seniority, enjoy more

power than others. Some individuals by virtue of their nearness to the management and a

strong personality derive power in the organization structure. If what is meant to be the

organization structure in terms of authority, information flow, and responsibility, and

what actually emerges organization structure due to the power play, is at variance, then it

will reflect in the organizational behavior affecting the performance of the organization.

If the effect is adverse, it is better to make suitable changes in terms of positions and their

placement in the organization.

ORGANISATIONAL CHANGE

Even though the organization is structured properly, over the period of time it starts

failing slowly due to the change in the environment, the people and the business. Like a

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living organization, an organization undergoes a process of birth and death. The process

of organization outlives the purpose for which it is established moves much faster, if

proper corrective action is not taken. The organization structure in its life cycle, starting

from the introduction, growth, maturity and decline should change suitably in the

respective phases. The behavioral change through the organizational change is achieved

by creating a climate for change, deciding designing and implementing the change,

watching and institutionalizing the change.

ORGANISATIONAL LEARNING

The organizational behavior improves with the experience it gathers from all business

fronts. With experience, people are in a position to identify the cause and effect

relationship. It is possible to predict the errors and probable mistakes in the business

operations. The rules, systems and procedures are streamlined over a period of time. With

this learning experience, some changes in the organization structure are inevitable and

they should be carried out.

The individuals in the organization are able to assess the strength and weaknesses within

them and are able to take steps to improve. As organizational learning increase, the

organization’s behavior shows maturity. With increased learning the organization moves

towards high degree of formalization affecting itself. The organizational learning is faster

if people and the management are dynamic and progressive.

Organizational Motivation

Organizational behavior can be monitored and directed if proper motivation is provided

to the people. Motivation inspires the people to perform. Monetary rewards, presentations

are the known methods of motivation. If a proper leadership is provided it is observed

that the people perform beyond expectations. The leadership is an interpersonal influence

on the subordinates which persuades or motivates them to perform to perform to achieve

the goal.

There are two leadership styles, autocratic and supportive. In an autocratic style, the

leader determines everything and dictates decisions. The decisions are enforced by the

power of authority. Under such a leadership style people are not trained to shoulder

higher responsibilities. The enterprising ones are frustrated under such a leadership style.

The supportive leadership style calls for participation consultation and respects the

opinion of the subordinates. The process evokes initiative amongst the subordinates and

gives them a feeling of importance and satisfaction.

Another method of motivation is though job environment. A job is to be designed in such

a way that it provides challenge to the skills of an employee. It should be a complete task

identifiable with the person and with a potential to create an impact on other people or on

the business. The person should feel autonomy in its operation and should get the direct

feedback of the result.

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The organizational behavior is an independent phenomenon in relation to the

organization

Structure. Having selected a proper type of structure the management of the organization

Should take the requisite steps to regulate the behavior of the group towards the achieve

Mint of goals and objectives of the organization.

4.4 ORGANISATIONS AS A SYSTEM

A system is an assembly of elements arranged in a logical order to achieve correctives

Objectives the organization is also a system of people. The individuals in the organization

Are selected in terms of number quality and ability and are placed in hierarchical order to

Plan and execute the business activities to achieve certain goals and objectives. This is

the

Simplest justification for calling the organization a system.

The management theorists however have seen organization in different views and

perspectives. They have identified more elements in the systems in the system besides the

people. The choice of technology and structure as additional three elements of the

organization system. He says that the task technology and people structure are dependent

on each other and their signification cannot be ignored as elements of the system.

The arrangement of task in terms of process and work design is dependent on the people.

The choice of technology of handling the task is dependent on the people. You may

choose the best technology and well designed task, but they have to be suited for the

people. Over and above these are to be arranged in proper structure. Further a fourth

Element has been added as culture. According to Leavitt an organization should be

viewed as a socio- technical system consisting of people task technology culture and

structure. The modified Leavitt’s model is shown in Fig. 4.6.

TASKS

PEOPLE STRUCTURE

GOALS

TECHNOLOGY CULTURE

Fig. 4.6 Modified Model of the Organisation System.

In view of the nature of the task the organization is supposed to carry out it has to be

designed as an open system capable of adjusting itself to the changing environment. The

organization continuously exchanges the information with the environment and is

influenced by the changes in it. The origination therefore has to be built in such a fashion

that it adjusts with the changes in the environment and that the goals and objectives are

achieved.

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MATURITY

GROWTH DECLINE

PROCESS

PHASE

INTRODUCTION TIME

Fig. 4.7

Hence the organization is a socio- technical system whose sub- systems are task people

technology culture and structure each having its own input and output satisfying at first

its own objective and eventually the corporate organization goals and objectives If the

sub-system’s goals and objectives are not congruent with the goals and objectives of the

corporate organization poor performance resistance to change and non- attainment of

corporate goals will be the consequences.

The systems and their goals are not stable. The goals change in response to the changes

in the business focus the environment and in the people in the organization. A significant

change calls for change in the organization structure A goals displacement is said to have

occurred when the system goals significantly. Another reason for goals change is due to

the

Natural process of growth and decline. This phenomenon is best described by a sigmoid

or S curve (Fig, 4.7).

All organizations and their business go through the different phases of growth cycle in

stages as Introduction Growth Maturity and Decline. Each phase generates new goals to

be served if the changed or displaced goals are not reflected in the organization as a

system the organization is bound to suffer from decay.

4.5 MIS : ORGANISATION

Management information systems (MIS) should be designed, viewing the organization as

discussed earlier. MIS design should give due weight age to the human side of the

organization and its culture. The task and technology are the physical aspects of the

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organization which can be ascertained very easily. But culture and people are very

difficult to assess from the design point of view. The structure of the five sub-systems

should be considered while designing the MIS. MIS design should give reports in line

with the organization structure. This means that the main decision makers and the power

centers must be recognized in the MIS. Let us discuss these aspects of the organization

structure and their implications.

In a tall hierarchy with a high degree of centralization, the MIS should give control

information to the higher management where decision making in concentrated. If the

system is structured on the functional basis where the functional head is a key decision

maker and all the functions have equally important role to play, then the MIS will have a

functional design with the information support to the functional head. Further, in such a

set-up, an integrated MIS would be necessary, reporting the corporate status of the

business to the top management.

If the organization works on a standardized system where rules, policies, systems and

procedures have been laid down, then these become part of the MIS. The processing

routines in the MIS incorporate these features as an integral part. This is safe as it has

already been approved by the management of the organization. Along with the

information, if the decision making responsibilities are also clearly defied and allocated,

then the MIS can produce information reports by processing the data and summarizing

the results in line with the decision maker’s position in the structure.

If the basic model of the organization is modified as a product or a project organization

system, then the MIS should focus on the management of planning and control of the

multiple functions. Besides these functions, he has to know the trouble spots and shows

the interconnection with the other functions. It must summaries all information relating to

the span of control of product or project manger. The MIS should be able to cater to the

view of the product or the project manager and also of the top management.

In the organization culture provides sufficient incentive for efficiency and results, the

MIS should support this culture by providing such information which will aid the

promotion of efficiency. If the culture encourages delegation of power and authority, then

the MIS should incorporate the decision making rules in the system.

The organization system is an open system and MIS should be so designed that it

highlights the critical business, operational, technological and environmental changes to

the concerned level in the organization, so that the action can be taken to correct the

situation. The principle of the feed forward control should be extensively used as a design

feature to provide a prior warning to the decision maker.

Since the organization system has a dynamic role to play to meet the changing needs of a

business, the MIS becomes a common support system for playing the dynamic role.

When an organization is moving through the business phases of introduction, growth,

maturity and decline, MIS should provide an information support, relevant to that phase

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of the business cycle. This means the designer of MIS should foresee such requirements

and make the design flexible enough to support such requirements.

The organizational learning helps to tone up the behavior of the organization. The MIS

should support the learning mechanism by identifying the cause and effect in a given

situation. It should keep the records of action and provide help to analyze the best action

in a given situation. It should be help to build various decision models for use by the

managers. The information support should be such that the group of enterprising manager

should be able to improve their capabilities to perform batter.

The design of the MIS, in isolation from organizational factors, is destined to fall as it

just does not fit into the structure. Since organization systems in the same business differ

for various reasons such as the leadership style, the management style, culture and group

of people as a body and so on, it is difficult to evolve a standard model of the MIS for a

business and/or an industry.

MIS plays a very important role in creating organization behavior which in turn sets the

goals for achievement. Technology and people decide the organization structure and style

of the management. Figure 4.8 explains the impact and relationship of MIS on the

organization behavior.

REVIEW QUESTIONS.

1. Draw an organization chart of a company known to you. How would you

describe it product, project Functional, or Matrix?

2. What are the parameters on which an organization is structured?

3. Explain the term: Span of control and Line of authority.

4. What is the meaning of formal organization and informal communication?

5. Can any business be organized only in one or the other organization model?

Justify your answer.

6. Which all factors will you take up for change if the organization behavior is to

change for the better? Which factor is easy to handle and which is most

difficult?

7. Why does an organization need periodical review? Which factors would suggest

that the organization needs a change?

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8. Explain how is organization a system where inputs are processed to gat a

desired output?

9. What is a goal displacement? Why does it occur? How does the organization

handle goal displacement?

10. Why does the organization structure differ from company to company even

though they are in same business and industry?

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CHAPTER-5

Strategic Management of Business

5.1 THE CONCEPT OF CORPORATE PLANNING

A plan is a predetermined course of action to be taken in the future. It is a document

containing the details of how the action will be executed and it is made agaist a time

scale. The goals and the objective that a plan is supposed to achieve are the prerequisites

of a plan. The setting of the goals and the objective is the primary task of the

Management without which planning cannot begin.

Planning means taking a deep look into the future and assessing the likely events in the

total business environment and taking a suitable action to meet any eventuality. It further

means generating the courses of action to meet the most likely eventuality. Planning is a

dynamic process. As the future becomes the present reality, the course of action decided

earlier may require a change. Planning, therefore, calls for a continuous assessment of the

predetermined course of action versus the current requirements of the environment. The

essence of planning is to see the opportunities and the threats in the future and

predetermine the course of action to convert the opportunity into a business gain, and to

meet the threat to avoid any business loss.

Planning involves a chain of decisions, one dependent on the other, since it deals with

along term period. A successful implementation of a plan means the execution of these

decisions in a right manner one after another.

Planning, in terms of future, can be long-range or short-range. Long-range planning is for

a period of five years or more, while short-range planning is for one year at the most. The

long-range planning is more concerned about the business as a whole, and deals with

subject like the growth and the rate of growth, the direction of business, establishing

some position in the business world by way of a corporate image, a business share and so

on. On the other hand, short-range planning is more concerned with the attainment of the

business results of the year. It could also be in terms of action by certain business tasks,

such as lunching of a new product, starting a manufacturing facility, completing the

project, achieving intermediate milestones on the way to the attainment of goals. The

goals relate to long-term planning and the objective relate to the short-term planning.

There is a hierarchy of objectives which together take the company to the attainment of

goals. The plans, therefore, relate to the objectives when they are short-range and to goals

when they are the long-range.

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Long-range planning deals with resource selection, its acquisition and allocation. It deals

with the technology and not with the methods or the procedures. It talks about the

strategy of achieving the goals. The right strategy improves the chance of success

tremendously. At the same time, a wrong strategy means a failure in achieving the goals.

Corporate business planning deals with the corporate business goals and objectives. The

business may be a manufacturing or a service; it may deal with the industry or trade; may

operate in a public or a private sector; may be a national or an international business.

Corporate business planning is a necessity in all cases. Though the corporate business

planning deals with a company, its universe is beyond the company. The corporate

business plan considers the world trends in the business, the industry, the technology, the

international markets, the national priorities, the competitors, the business plans, the

corporate strengths and the weaknesses for preparing a corporate plan. Planning

therefore, is a complex exercise of steering the company through the complexities, the

difficulties, the inhibitions and the uncertainties towards the attainment of goals and

objective.

Dimensions of Planning.

The corporate business plan has five dimensions. These are time, entity, organization,

elements and characteristics.

Time

The plan may either be long-range or short-range, but the execution of the plan is, year

after year. The plan is made on a rolling basis where every year it is extended by one

year, keeping the plan period as the next five years. The rolling plan provides an

opportunity to correct or revise the plan in the light of any new information the planner

may receive.

Entity

The plan entity is the thing on which the plan is focused. The entity could be the

production in terms of quantity or it could be a new product. It could be about the

finance, the marketing, the capacity, the manpower or the research and development. The

goals and the objectives would be stated in terms of these entities. A corporate plan may

have several entities.

Organisation

The corporate plan would deal with the company as a whole, but it has to be broken down

for its subsidiaries, if any, such as the functional groups, the divisions, the product groups

and the projects. The breaking of the corporate business plan into smaller organizational

units helps to fix the responsibility for execution. The corporate plan, therefore, would be

a master plan and it would comprise several subsidiary plans.

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Elements

The plan is made out of several elements. The plan begins with the mission and goal

which the organization would like to achieve. It may provide a vision statement for all to

understand as also the purpose, focus, and direction the organization would like to move

towards. It would at the outset, place certain policy statements emerging out of

management’s business philosophy, culture and style of functioning followed by policy

statements. Next it would declare the strategies in various business functions, which

would enable the organization to achieve the business objectives and targets. It would

spell out a program of execution of plan and achievements. It provides support on rules,

procedures and methods of plan implementation, wherever necessary. One important

element of the plan is a budget stipulated for achieving certain goals and business targets.

The budgets are provided for sales, production, stocks, resources, expenses which are

monitored against the time in execution period. The budgets and performance provide

meaningful measure about success and failure of the plan designed to achieve certain

goals.

Characteristics

There are no definite characteristics of a corporate plan. The choice of characteristics is a

matter of convenience helping to communicate to everybody concerned in the

organization and for an easy understanding in execution. The features of a plan could be

several and could have several parts. The plan is a confidential written document subject

to charge, and known to a limited few in the organization. It is described in the

quantitative and qualitative terms. The long-term plan is normally flexible while the

short-term one is generally not. The plan is based on the rational assumptions about the

future and gives weight age to the past achievements and corporate strength and weal

messes. The typical characteristics of a corporate plan are the goals, the resources, the

important milestones, the investment details and a variety of schedules.

5.2 ESSENTIALITY OF STRATEGIC PLANNING.

There are some compelling reasons which force all the organizations to resort to strategic

business planning. The following reasons make planning an essential management

process to keep the business in a good shape and condition:

1. Market forces

2. Technological change

3. Complex diversity of business

4. Competition

5. Environment (Threats, Challenges, and Opportunities)

MARKET FORCES

It is very difficult to predict the market forces such as the demand and supply, the trend

of the market growth, the consumer behavior and the choices, the emergence of new

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product and the new product concepts. The ability of the organization to predict these

forces and plan the strategies is limited for the various reasons. The market forces affect

the sales, the growth and the profitability. With the problems arising out of market forces,

it is difficult to reorient the organization quickly to meet the eventualities adversely

affecting the business unless the business is managed through a proper business plan.

Technological Change

There are a number of illustrative cases throughout the world on the technological

breakthroughs and changes which have threatened the current business creating new

business opportunities. The emergence of the microchip, plastic, laser technology, fiber

optics technology, unclear energy, wireless communication, audio-visual transmission,

turbo engines, thermal conductivity and many more, are the examples which have made

some products obsolete, threatening the current business, but at the same time, have

created new business opportunities. The technological changes have affected not only the

business prospects but the managerial and operational styles of the organizations.

In the absence to any corporate plan, such a technological change can bring the

organization into some difficult problems and, in some cases, can pose a threat to its

survival. The corporate plan is expected to ensure the recovery of the business investment

before such a technological change takes over.

Complex Diversity of Business.

The scope of business is wide, touching many fronts. The variety of products, the

different market segments, the various methods of manufacturing the multiple locations,

the dependence on the external factors, such as the transport, the communications and the

manufacturing resources brings complexity in the management of business. Many factors

are uncontrollable and unless there is a plan, prepared with due consideration to the

diverse and complex nature of business, handling these factors is not possible. This might

lead to the loss of business opportunity.

As the business grows, it reaches a stage where the strategies such as the expansion

vertical or horizontal, integration-forward or backward, diversification-in the same line or

in the diverse line of business, are the issues which the management is required to handle.

These issues are investment-oriented and have a far-reaching effect on the business

growth, direction and profitability.

Competition

Facing competition in the business means fighting on a number of fronts. Competition

could be direct or indirect. It may share the marker or create a new product which will

shift the market affecting your business. Competitions could be solely in the management

of business, when there is hardly any product distinction or it may come from certain

sectors which are being promoted by the government. The companies compete on the

merits such as the know how, quality, prompt delivery, after sales service, etc.

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Competition is a natural phenomenon in business, and it has to be dealt with in a proper

manner to protect business interests. This means that the management has to continuously

evolve new strategies to deal with the competition. Evolving strategies and their

implementation, calls for forward thinking and planning, without which it is not possible

to handle competition.

Competition forces the management to look for new products, new markets, and new

technologies to keep the market share intact, the process controlled and the quality

improved. Strategies also have to be implemented in a proper sequence as business

competition demands an intricate planning, testing and implementation of the strategies.

The competition should never be underestimated and has to be met squarely through

corporate planning.

Environment

The environment is beyond the control of the management. Depending upon the

organizations business and its purpose, different environments have bearing on the

fortunes of business. It could be one of the social, businesses, economic, industrial,

technological environments affecting the business. Many a times, it could be a mix of

different environments. The environmental changes are difficult to predict and are

generally slow. Therefore, many times the managements are caught unaware by the

environmental changes. To illustrate the environment’s impact on business, some

examples of recent origin are mentioned as follows.

Widespread education programmers have created new opportunities for knowledge

processing and communication. The introduction of television has adversely affected the

film industry and its immense popularity has considerably retracted other amusement

activities like going for a picnic or to a circus. Personal computers are fast replacing the

typewriters on account of changing office environment.

Values and attitudes make the penetration in the market difficult. The difference in the

values and attitudes of the rural and urban consumers calls for separate products with

different advertising strategies for them. The attitude of the consumer towards fast food

or frozen food decides its spread and popularity. Similarly continuous increase in the cost

of transport affects the tourism and hotel industry but promotes the home entertainment

industry. The policies of the Government also affect the business and the industry. The

international laws and agreement create new opportunities and threats to the business.

Forecasting the probable environment changes like the change in population population

mix consumer preferences and their behavior government policies new opportunities and

so on and forth is a major task.

Business planning therefore is absolutely essential for the survival of the business Peter

Drucker defines long-range planning as the process of making the present managerial

(risk taking) decisions systematically and with the best possible knowledge of their

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futurity organizing systematically the efforts needed to carry out these decisions and

measuring the results of these decisions against the expectations through organized

through systematic feedback. Planning is neither forecasting nor making future decisions

today it is making current decisions in the light of future.

Planning does not eliminate the risk but provides an effective tool to face it.

Comprehensive corporate planning is not an aggregate of the functional plans but it is a

systematic approach aiming to maneuver the enterprise direction over a period of time

through an uncertain environment to achieve the stated goals and the objective of the

organization.

5.3 DEVELOPMENT OF THE BUSINESS STRATEGIES

Long- range Strategic planning

Like any other business activity planning also has a process and methodology. It goes

without any extra emphasis that the corporate planning is a top management

responsibility. It begins with deciding the social responsibility and proceeds to spell out

the business mission and goals and the strategies to achieve them.

In the very beginning of the planning process it is necessary to establish and

communicate to all concerned the social and economic responsibilities of the

organization In order to discharge these responsibilities it is necessary to decide the

purpose of the organization for which it works. Many organizations call it a mission.

The mission or the aim of an organization is a broad statement of the organization’s

existence which sets the direction of the organization and decides the scope and the

boundaries of the business.

The task after deciding the mission or the aim is to set the goal (s) for the organization.

The goal is more specific and has a time scale of three to five years. It is described in the

quantitative terms in the form of a ratio a norm or a level of certain business aspect such

as the largest share leader in the industry dominant in certain product quality reach and

distribution etc. The goals become a reference for the top management in planning the

business activities.

After determining the mission and the goals the next task is to set various objectives for

the organization The objectives are described in terms of business results to be achieved

in a short duration of a year or two The objectives are measurable and can be monitored

with the help of business tools and technologies Objective may be the profitability the

sales the quality standard the capacity utilization etc. When achieved the objectives will

contribute to the accomplishment of the goals and subsequently the mission.

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The next step in the planning process is to set targets for more detailed working and

reference The objective of the business is to be translated in terms of functional and

operational units for easy communication and decision making The targets may be

monthly for the sales production inventory and on The targets will be the direct

descendants of the objective(s)

The success in achieving the goals and objective is directly dependent on the

managements business strategies business is like a war where two or more business

competitors are set against each other to win and are constantly in search of a strategy

manner in which the resources, such as the men, the material, the money and the knowhow

will be put to use over a period to achieve the goals. The resources of an

organization being faced by it the game is of evolving strategies and counter strategies to

win.

The development of the strategy also considers the environmental factors such as the

tech nology, the markets, the life style, the work culture, and the attitudes. The policies of

the Government and so on a strategy helps to meet the external forces affecting the

business development effectively and further ensures that the goals and the objectives are

achieved. The development of the strategy considers the strength of the organization in

deploying the resources and unstructured exercise of a complex nature riddled with the

uncertainties (see Fig. 5.1) it sets the guidelines for use of the resources in kind and

manner during the planning period.

ENVIRONMENT SOCIO- ECONIMIC MISSION, GOALS

PURPOSE

FACTORS FOR

STRATEGY FORMULATION

STRENGT AND

WEAKNESS OF

The ORGANISATION BUSINESS COMPETITION

FIG. 5.1

5.4 TYPES OF STRATEGIES

A strategy means a specific decision (S) usually but not always regarding the deployment

of the resources to achieve the mission or goals of the organization The right strategy

beats competition and ensures the attainment of goals while a wrong strategy fails to

achieve the goals Correction and improvement in case of a wrong strategy is possible at a

very high cost .such a situation is described as a strategic failure.

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If a strategy considers a single point of attack by a specific method .it is a mixed strategy.

If a strategy acts on many fronts by different means then it is a mixed strategy the

business strategy could be series of pure strategies handling several external forces

simultaneously.

Hence the strategy may fall in any area of the business and may deal with any aspects of

the business It could be aspects like price market product technology process quality

service finance management strength and so on when the management decides to fight

the external forces of a single area by choice it becomes a pure strategy if it uses or

operates in more then one area then it becomes a mixed strategy.

The success of an organization in spite of its strength depends on the strategic moves or

planning the management pursues. The strategy may be pure or mixed It can be classified

into four broad classes 1. Overall Company Strategy 2. Growth Strategy 3.Product

Strategy and 4. Marketing Strategy.

These strategies are applicable to all the types of businesses and industries.

Overall Company Strategy

This strategy a very long- term business perspective deals with the overall strength of the

entire company and evolves those policies of the business which will dominate the course

of the business movement it is the most productive strategy if chosen correctly and fatal

if chosen wrongfully the other strategies act under the overall company strategy. To

illustrate the overall company strategy following examples is given:

1. A two wheeler manufacturing company will have a strategy of mass production

and an aggressive marketing.

2. A computer manufacturer will have a strategy of adding new products every two

or three years.

3. A consumer goods manufacturer will have a strategy of maximum reach to the

consumer and exposure by way of a wide distribution network.

4. A company can have a strategy of remaining in the low price range and catering

to the masses.

5. Another company can have a strategy of expanding very fast to capture the

market.

6. A third company can have a strategy of creating a corporate brand image to build

a brand loyalty e.g. Escorts , kirloskar , Godrej ,Tata , Bajaj, BHEL , MTNL.

THE overall company strategy is broad- based having a far reaching effect on the

different facets of business and forming the basis for generating strategies in the other

areas of business.

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5.6 TOOLS OF PLANNING

Planning, long-range or short-range, strategic or tactical, involves a series of decisions to

be taken by the managers in the organization. So when we talk about the tools of

planning, we are talking about the tools of decision-making with reference to planning.

Decisions relate to several aspects of corporate business planning. There are number of

alternatives, choices and options available while planning the business. Further, there is

selection of resources and their allocation in an optimum manner to maximize the gains.

Then there is selection of method whereby the efforts at all the levels are coordinated

towards a common goal and direction. The planning, therefore, involves decision-making

with the help of tools. These tools are based on one or more factors. These factors are:

Creativity: Systems approach: Sensitivity analysis: and Modeling.

Creativity

Creativity comes out of an experience, a judgment, an intuition of an individual or a

group of individuals. When decision making is called for a situation which has no

precedent then creativity is the only tool to resolve the problem of decision making.

Creativity is the result of the conceptual skills of an individual. The concept ional skills

comprise the following skills.

1. The ability to generate a number of ideas rapidly.

2. The ability to change quickly from one frame of reference to another.

3. Originality in interpreting an event and generating different views on the

situation.

4. The ability to handle with clarity and ease a complex relationship of various

factors in a given situation.

A person who possesses these skills in said to have a conceptual fluency. If an

organization has a number of people, at least at key positions, with conceptual

fluency, then it becomes a creative organization. Such an organization creates new

ideas and new strategies for development of business. The plans are made on the

strength of experience and conceptual fluency.

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Systems Approach

Systems approach to planning considers all the factors and their inter-relationship

relevant to the subject. It takes a course to an analytical study of the total system,

generates alternative courses of action and helps to select the best in the given

circumstances. It is uses in situation of risk or uncertainty, and examines the various

alternative courses of action. I help to find solutions to problems.

The systems approach helps to understand the situation with clarity. It helps to

sort out the factors on the principles of critical and non-critical, significant and

insignificant, relevant and irrelevant, and finally controllable and uncontrollable. It tests

the solutions for feasibility-technical, operational and economic. It further studies the

problems of implementation of the solution.

Broadly, the systems approach has the following characteristic:

1. It uses all the areas and the branches of knowledge.

2. It follows a scientific analysis to identify the problem.

3. It uses a model of a complex situation to handle the problem.

4. It weighs cost against benefit for assessment of the alternatives.

5. It deals with the problems where time context is futuristic.

6. It considers the environment and its impact on the problem situation.

7. Every solution is tested on the grounds of rationality and feasibility, and

accepts a given criterion for selection of the most preferred alternative.

8. It uses operations research models if the problem is well defined. Alternately,

it uses a simulation approach to solve the problem. It uses tools such a Gantt

chart, PERT/CPM, Network analysis for scheduling and coordinating the

activities.

The systems approach is a way of looking at a problem in a systematic manner

using the scientific methods and applying the principles of a rational decision making to

solve the problem.

Sensitivity Analysis

The sensitivity analysis helps to test the validity of the solution in variable conditions.

The problem situation is handled with certain assumptions and conditions. Based on these

considerations, a rational solution is found. Sensitivity analysis requires to know whether

the solution will still remain valid if the assumptions changed, constraints were relaxed

and new condones emerged. It helps to assess the impact of change on the solution in

economic terms. If various factors are involved, the sensitivity analysis helps to assess

the criticality of the factor against the impact it makes on the solution. Some factors will

be highly sensitive and some will not be so. Most of the decision making problems are

resolved on the principle of optimality, where you are trying to balance the two aspects of

the problems, such as, inventory carrying cost versus ordering cost, waiting time cost

versus idle time cost, costs, verses benefits, opportunity loss versus investment cost and

so on. The sensitivity analysis helps to test the validity of the optimal solution under

changed conditions.

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Sensitivity analysis helps to test the solutions on the principle of utility. A solution

which is economically rational and is based on sound business principles may be rejected

on the principle of utility. The utility profiles of all the people in the organization are not

the same. The utility profile, alternately known as a preference curve, shows the attitude

and preference of the decision maker towards the gains and the losses against a time

scale. The profile shows indirectly the risk-taking ability of the decision maker. It uses

techniques such as the decision tree analysis, methods of discounting, payoff matrix,

simulation, and the modeling.

Modeling

A model is a meaningful representation of a real situation on a mini scale, where only the

significant factors of the situation are highlighted. The purpose of a model is to

understand the complex situation based on only the significant factors.

There are several types of models. The model could be a physical model, like a model

of a house, a park, a sports complex, etc. The model could be a scale model reducing a

large body to a small one. The model could be mathematical model like break even

analysis model, linear programming model, queuing model, network model, etc. Here a

situation is represented in a mathematical form such as equations, matrices graphs and

polynomials.

A complex situation is represented using variables, constants and parameters which

play a significant role in that situation. The model is based on the relations the variables

have. The relation among the variables may be linear or non-linear. The model only

considers the relation of high significance. The model, when a situation is complex, tries

to simplify the complexity by ignoring minor factors and emphasizing only minor

important factors.

A model could be static or dynamic. The physical models are static models. Some

business models like the break even analysis model, the statistical regression models and

some of the O.R.programming models are static models. The static model does not

change over a time period.

All the planning models and all the forecasting models are dynamic models. In a

dynamic model, in addition to the variables considered, time is a dimension of the

variables. The values of these variables change with the change in time. Such variables

are called the stochastic variables.

A model, physical or mathematical, static or dynamic, needs to be tested for its utility

or effectiveness. The model can be tested by using the control results already obtained.

This would show the difference between the result given by the model and the actual

result in a real life situation. If the difference is not significant, then one can say that the

model represents the real situation. Once the model is proved useful, it is used for testing

the various solution alternatives. The selection of a solution, from many alternative

solutions, depends on the objective chosen. In a linear programming model, a solution is

selected on the principle of maximization of the profit or minimization of the cost. In the

queuing model a solution is selected, when the cost of the waiting time of a customer is

less than the cost of the idle time of facility. The selection of a solution is based on the

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attainment of certain value of some aspect of the business, such as the turnover, the cost

and the profit and so on.

The planning model considers those business variables which affect the business

prospects and which show a significant impact on the business results. The long-range

strategic models are, generally, dynamic models and the short-range management and

operations models are mostly static models.

5.7 MIS: BUSINESS PLANNING

Business environment is prone to changes and this factor makes business planning very

complex. Some factors such as the market forces, technological changes, complex

diversity of business and competition have a significant impact on any business

prospects. MIS is designed to assess and monitor these factors. The MIS design is

supposed to provide some insight into these factors enabling the management to evolve

some strategy to deal with them. Since these factors are a part of the environment, MIS

design is required to keep a watch on environment factors and provide information to the

management for a strategy formulation.

Strategy formulation is a complex task based on the strength and the weakness of the

organization and the mission and goals it wishes to achieve. Strategy formulation is the

responsibility of the top management and the top management relies on the MIS for

information.

There are various business strategies such as overall company growth, product,

market, financing and so on. MIS should provide the relevant information that would

help the management in deciding the type of strategies the business needs. Every business

may not require all the strategies all the time. The type of strategy is directly related to

the current status of business and the goals it wishes to achieve. The MIS is supposed to

provide current information on the status of the business vis-à-vis the goals. MIS is

supposed to give a status with regard to whether the business is on a growth path or is

stagnant or is likely to decline, and the reasons thereof. If the status of the business shows

a declining trend, the strategy should be of growth. If business is losing in a particular

market segment, then the strategy should be a market or a product strategy.

The continuous assessment of business progress in terms of sales, market, quality,

profit and its direction becomes the major role of MIS. It should further aid the top

management in strategy formulation at each stage of business. The business does not

survive on a single strategy but it requires a mix of strategy operating at different levels

of the management. For example, when a business is on the growth path, it would require

a mix of price, product and market strategies. If a business is showing a decline, it would

need a mix of price-discount, sales promotion and advertising strategies.

The MIS is supposed to evaluate the strategies in terms of the impact they have on

business and provide an optimum mix. The MIS is supposed to provide a strategy-pay off

matrix for such an evaluation.

In business planning, MIS should provide support to top management for focusing its

attention on decision making and action. In business management, the focus shifts from

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one aspect to another. In the introductory phase, the focus would be on a product design

and manufacturing. When the business matures and requires and requires to sustain or to

consolidate, the focus would be on the post sales services and support. The MIS should

provide early warning to change the focus of the management from one aspect to the

other.

Evolving the strategies is not the only task the top management has to perform. It also

has to provide the necessary resources to implement the strategies. The assessment of

resource need, and its selection becomes a major decision for the top management. The

MIS should provide information on resources, costs, quality and availability, for deciding

the cost effective resource mix.

When the strategies are being implemented, it is necessary that the management gets

a continuous feedback on its effectiveness in relation to the objective which they are

supposed to achieve. MIS is supposed to give a critical feedback on the strategy

performance. According to the nature of the feedback, the management may or may not

make a change in the strategy mix, the focus and the resource allocation.

MIS has certain other characteristics for the top management. It contains forecasting

models to probe into the future-the business model for evaluation of the strategy

performance by simulation business conditions. It contains functional models such as the

model for a new product launching, budgeting, scheduling and the models using PERT /

CPM technique for planning.

MIS for the top management relies heavily on databases which are external to the

organization. The management also relies heavily on the internal data which is evolved

out of transaction processing. Management uses the standards, the norms, the rations and

the yardsticks while planning and controlling the business activities. They are also used

for designing strategies and their mix. The MIS is supposed to provide correct, precise

and unbiased standards to the top management for planning.

We can summaries the role of the MIS in the top management function as follows.

MIS supports by way of information, to

1. decide the goals and objectives,

2. determine the correct status of the future business and projects,

3. provide the correct focus for the attention and action of the management,

4. evolve, decide and determine the mix of the strategies,

5. evaluate the performance and give a critical feedback on the strategic failures,

6. Provide cost-benefit evaluation to decide on the choice of resources, the

mobilization of resources, and the mix of resources.

7. Generate the standards, the norms, the ratios and the yardsticks for measurement

and control.

Success of a business depends on the quality of support the MIS gives to the

management. The quality is assured only through an appropriate design of the MIS

integrating the business plan with the MIS plan. Figure 5.3 explains the role of the MIS in

strategic planning and its support in the execution and control of the management

processes.

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REVIEW QUESTIONS

1. What is corporate planning? Why is it necessary? It is long-range or short-range?

2. What is strategic planning? When does it assume importance in the business?

3. Why should companies resort to long-range strategic planning? How is it linked to

mission and goals of the company?

4. What are the different types of strategy? Can a business have more than one strategy?

How are different strategies related to each other? Explain with reference to a business of

your choice, a growth strategy, marketing strategy, product strategy.

5. What is sensitivity analysis? Why is it done on the solution or alternative strategies? What

benefits do you get after analysis?

6. Why is a business model necessary? How would you construct a model for following

subject :

 Sales Model for forecasting,

 Production Model for capacity forecasting,

 Business Model for profitability analysis.

7. Construct models for the following :

 Break-even analysis,

 Cash flow,

 Cost analysis,

 Sales analysis.

8. What benefits does planning either long-range or short-range offers to the management?

9. Explain the systems approach to management planning. Also explain how the concept

of negative and position feedback is used effectively in this approach?

10. E essentially, all budgets, i.e., sales, production, materials, etc. are translated into financial

budgets, and a business plan is made. Does this mean that the organization is doing

planning for its business or does it mean through budget it is executing the plan? How are

budgets used in planning?

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Basics of

Management Information Systems

CHAPTER-6

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Decision Making g

6.1 DECISION MAKING CONCEPTS

The word decision is derived from the Latin root decido, meaning to cut off. The concept of

decision, therefore, is settlement, a fixed intention bringing to a conclusive result, a judgment,

and a resolution. A decision is the choice out of several options made by the decision maker to

achieve some objective in a given situation.

Business decisions are those, which are made in the process of conducting business to

achieve its objectives in a given environment. In concept, whether we are talking about

business decisions or any other decision, we assume that the decision maker is a rational

person who would decide, with due regard to the rationality in decision making.

The major characteristics of the business decision making are:

(a) Sequential in nature.

(b) Exceedingly complex due to risks and trade offs.

(c) Influenced by personal vales

(d) Made in institutional settings and business environment.

The business decision making is sequential in nature. In business, the decisions are not

isolated events. Each of them has a relation to some other decision or situation. The decision may

appear as a “snap” decision but it is made only after a long chain of developments and a series of

related earlier decision.

The decision making process is a complex process in the higher hierarchy of management.

The complexity is the result of many factors, such as the inter-relationship among the experts or

decision makers, a job responsibility, a question of feasibility, the codes of morals and ethics, and

a probable impact on business.

The personal values of the decision maker play a major role in decision making. A decision

otherwise being very sound on the business principle and economic rationality may be rejected on

the basis of the personal values, which are defeated if such a decision is implemented. The

culture, the discipline and the individual’s commitment to the goals will decide the process and

success of the decision.

Whatever may be the situation, if one analyses the factors underlying the decision making

process, it would be observed that there are common characteristics in each of them. There is a

definite method of arriving at a decision: and it can be put in the form of decision process model.

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The decision making process requires creativity, imagination and a deep understanding of

human behavior. The process covers a number of tangible and intangible factors affecting the

decision process. It also requires a foresight to predict the post-decision implications and a

willingness to face those implications. All decisions solve a problem but over a period of time

they give rise to a number of other problems.

Rational Decision Making

A rational decision is the one which, effectively and efficiently, ensures the achievement of the

goal for which the decision is made. If it is raining, it is rational to look for a cover so that you do

not get wet. If you are in business and want to make profit, then you must produce goods and sell

them at a price higher than the cost of production. In reality, there is no right or wrong decision

but a rational or an irrational decision. The quality of decision making is to be judged on the

rationality and not necessarily on the result it produces.

The rationality of the decision made is not the same in every situation. It will vary with the

organization, the situation and the individual’s view of the business situation. The rationality,

therefore, is a multi-dimensional concept. For example, the business decisions in a private

organization and a Public Sector Undertaking differ under the head of rationality. The reason for

this difference in rationality is the different objectives of the decision makers. Any business

decision if asked to be reviewed by a share-holder, a consumer, an employee, a supplier and a

social scientist, will result in a different criticism with reference to their individual rationality.

This is because each one of them will view the situation in different contexts and the motive with

the different objectives. Hence, whether a decision is right or wrong depends on a specific

rational view.

The question which further arises: Is a decision “rationales”? If it turns out to be wrong in

terms of the results it produces, can we cast doubts on the rationality?

Simon Herbert A* differentiates among the types of rationality. A decision, in a given

situation is:

 Objectively rational if it maximizes the value of the objective.

 Subjectively rational if it maximizes the attainment of value in relation to the

knowledge and awareness of the subject.

* Herbert Simon A, Top Management Planning, The Macmillan Company by George A

Steiner.

 Consciously rational to the extent the process of the decision making is a conscious one.

 Organizationally rational to the degree of the orientation towards the organization.

 Personally rational to the extent it achiever’s an individual’s personal goals.

In other words, so long as the decision maker can explain with logic and reason, the

objectivity and the circumstances in which the decision is made, it can be termed as a rational

decision. Whether the rationality applied is appropriate or not could be a point for debate. Gross

Bertram M* suggests three dimensions of rationality. First, the degree of satisfaction of human

interest. Second, the degree of feasibility in achieving the objectives. Third, a consistency in

decision making. If a decision maker shows a consistent behavior in the process of decision

making, then one can say that he meets the test of the rationality.

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The Problems in Making Rational Decisions

(a) Ascertaining the problem

As Peter Drucker points out, “the most common source of mistakes in the management decisions

is the emphasis on finding the right answers rather than the right questions”. The main task is to

define the right problem in clear terms. The management may define the problem as the “Sales

are declining”. Actually, the decline of sales is symptomatic; the real problem may be somewhere

else. For example the problem may be the poor quality of the product and you may be thanking of

improving the quality of advertising.

(b) Insufficient knowledge

For perfect rationality, total information leading to complete knowledge is necessary. An

important function of a manager is to determine whether the dividing line is reached between

insufficient knowledge and the enough information to make a decision.

(c) Not enough time to be rational

The decision maker is under pressure to make decisions. If time is limited, he may make a hasty

decision which may not satisfy the test of rationality of the decision.

(d) The environment may not cooperate

Sometimes, the timing of the decision is such that one is forced to make a decision but the

environment is not conducive for it. The decision may fail the test of rationality as the

environmental factors considered in the decision-making turn out to be untrue. For example, in a

product pricing, the factor of oil and petroleum product price is considered as stable. But the postdecision

environment proves the consideration to be wrong.

(e) Other limitations

Other limitations are the need for a compromise among the different positions, misjudging the

motives and values of people, poor communications, misappraisal of uncertainties and risks, an

inability of a human mind to handle the available knowledge and human behavior.

How do we then ensure rationality? It is ensured, if the process of decision making is carried

out systematically, whereby all the aspects of the decision making discussed above are taken care

of. Herbert Simon said that a decision maker follows the process of decision making disregarding

the decision or the type of decision and the motive behind the decision. This process is followed

consciously or without knowing it. We can put this process in the Decision Making Model.

6.2 DECISION METHODS, TOOLS AND PROCEDURES

Decision making is a process which the decision maker uses to arrive at a decision. The core of

this process is described by Herbert Simon in a model. He describes the model in three phases as

INTELLIGENCE

DESIGN

CHOICE

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shown in Fig. 6.1 viz.: (a) Intelligence; (b) Design; and (c) Choice. MIS follows this model in its

development state.

Fig. 6.1 Herbert Simon Model

Intelligence

Raw data collected, processed and examined. Identifies a problem calling for a decision.

Design

Inventing, developing and analyzing the different decision alternatives and testing the feasibility

of implementation. Assess the value of the decision outcome.

Choice

Select one alternative as a decision, based on the selection criteria.

In the intelligence phase, the MIS collects the data. The data is scanned, examined, checked

and edited. Further, the data is sorted and merged with other data and computations are made,

summarized and presented. In this process, the attention of the manager is drawn to all the

problem situations by highlighting the significant differences between the actual and the

expected, the budgeted or the targeted.

In the design phase, the manager develops a model of the problem situation on which he can

generate and test the different decisions to facilitate its implementation. If the model developed is

useful in generating the decision alternatives, he then further moves into phase of selection called

as choice.

In the phase of choose, the manager evolves a selection criterion such as maximum profit,

least cost, minimum waste, least time taken, and highest utility. The criterion is applied to the

various decision alternatives and the one which satisfies the most is selected.

In these three phases, if the manager fails to reach a decision, he starts the process all over

again from the intelligence phase where additional data and information is collected, the decision

making model is refined, the selection criteria is changed and a decision is arrived at.

The MIS achieves this in an efficient manner without repeated use of the Simon Model

again and again. An ideal MIS is supposed to make a decision for the manager.

An example of the Simon Model would illustrate further its use in the MIS. For example, a

manager finds on collection and through the analysis of the data that the manufacturing plant is

under-utilized and the products which are being sold are not contributing to the profits as desired.

The problem identified, therefore, is to find a product mix for the plant, whereby the plant is fully

utilized within the raw material and the market constraints, and the profit is maximized. The

manager having identified this as the problem of optimization, now examines the use of Linear

Programming (LP) Model. The model used to evolves various decision alternatives. However,

selection is made first on the basis of feasibility, and then on the basis of maximum profit.

The product mix so given is examined by the management committee. It is observed that the

market constraints were not realistic in some cases, and the present plant capacity can be

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enhanced to improve the profit. The same model is used again to test the revised position.

Therefore, additional data is collected and an analysis is made to find out whether the average 20

per cent utilization of the capacity can be increased. A market research for some products is made

and it is found that some constraints need to be removed and some reduced. Based on the revised

data, LP Model is used, and the optimum solution obtained.

Decision Making Systems

The decision making systems can be classified in a number of ways. There are two types of

systems based on the manager’s knowledge about the environment. If the manager operates in a

known environment then it is a closed decision making system. The conditions of the closed

decision making system are:

(a) The manager has a known set of decision alternatives and knows their outcomes fully in

terms of value, if implemented.

(b) The manager has a model, a method or a rule whereby the decision alternatives can be

generated, tested, and ranked.

(c) The manager can choose one of them, based on some goal or objective.

A few examples are a product mix problem, an examination system to declare pass or fail, or

an acceptance of the fixed deposits.

If the manager operates in an environment not known to him, then the decision making

system is termed as an open decision making system. The conditions of this system are:

(a) The manager does not know all the decision alternatives.

(b) The outcome of the decision is also not known fully. The knowledge of the outcome

may be a probabilistic one.

(c) No method, rule or model is available to study and finalize one decision among the set

of decision alternatives.

(d) It is difficult to decide an objective or a goal and, therefore, the manager resorts to that

decision, where his aspirations or desires are met best.

Deciding on the possible product diversification lines, the pricing of a new product, and the

plant location, are some decision making situations which fall in the category of the open decision

making systems.

The MIS tries to convert every open system to a closed decision making system by

providing information support for the best decision. The MIS gives the information support,

whereby the manager knows more and more about the environment and the outcomes, he is able

to generate the decision alternatives, test them and select one of them. A good MIS achieves this.

Types of Decisions

The types of decisions are based on the degree of knowledge about the outcomes or the events yet

to take place. If the manager has full and precise knowledge of the event or outcome which is to

occur, then his problem of the decision making is not a problem. If the manager has full

knowledge, then it is a situation of certainty. If he has partial knowledge or a probabilistic

knowledge, then it is decision making under risk. If the manager does not have any knowledge

whatsoever, then it is decision making under uncertainty.

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A good MIS tries to convert a decision making situation under uncertainty to the situation

under risk and further to certainty. Decision making in the operations management, is a situation

of certainty. This is mainly because the manager in this field has fairly good knowledge about the

events which are to take place, has full knowledge of environment, and has predetermined

decision alternatives for choice or for selection.

Decision making at the middle management level is of the risk type. This is because of the

difficulty in forecasting an event with hundred per cent accuracy and the limited scope of

generating the decision alternatives.

At the top management level, it is a situation of total uncertainty of account of insufficient

knowledge of the external environment and the difficulty in forecasting business growth on a

long-term basis.

A good MIS design gives adequate support to all the three levees of management.

Nature of Decision

Decision making is a complex situation. To resolve the complexity, the decisions are classified as

programmed and non-programmed decisions.

If a decision can be based on a rule, method or even guidelines, it is called the programmed

decision. If the stock level of an item is 200 numbers, then the decision to raise a purchase

requisition for 400 numbers is a programmed-decision-making situation. The decision maker here

is told to make a decision based on the instructions or on the rule of ordering a quantity of 400

items when its stock level reaches 200.

If such rules can be developed wherever possible, then the MIS itself can be designed to make

a decision and even execute. The system in such cases plays the role of a decision maker based on

a given rule or a method. Since the programmed decision is made through MIS, the effectiveness

of the rule can be analyzed and the rule can be revived and modified from time to time for an

improvement. The programmed decision making can be delegated to a lower level in the

management cadre.

A decision which cannot be made by using a rule or a model is the non-programmed decision.

Such decisions are infrequent but the stakes are usually larger. Therefore, they cannot be

delegated to the lower level. The MIS in the non-programmed-decision situation can help to some

extent, in identifying the problem, giving the relevant information to handle the specific decision

making situation. The MIS, in other words, can develop decision support systems in the nonprogrammed-

decision-making situations.

The Law of Requisite Variety

In programmed decision making, it is necessary for the manager, to enumerate all the stages of

the decision making situation, and provide the necessary support through rules and a formula for

each one of them. The failure to provide the decision making rule, in each of them, will lead to a

situation where the system will not be able to make a decision. It is, therefore, necessary to cover

a requisite variety of situations with the necessary decision response.

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The requisite variety of situations means that for efficient programmed decision making, it is

necessary for the manager to provide.

(a) All the decision alternatives and the choices in each state’

(b) The decision rules to handle the situation; and

(c) The system or the method to generate a decision choice.

It has been found that in a closed-decision-making situation, the programmed decision

making system works efficiently, while in the open-decision-making situation, it is not efficient.

With the advent of expert systems and the knowledge-based artificial intelligence systems, it is

now possible for a computer to develop the alternatives, test them and handle them on the criteria

of selection leading to a decision. The MIS is expected to provide the necessary information and

knowledge support to the computer based system.

Methods for Deciding Decision Alternatives

There are several methods to help the manager decide among the alternatives. The methods

basically are search processes to select the best alternative upon satisfying certain goals.

Three methods for selection of decision alternatives with the goals in view are: (a)

Optimization Techniques; (b) Payoff Analysis; and (c) Decision Tree Analysis.

All the operational research models use optimization techniques, to decide on the decision

alternatives. When a decision making situation can be expressed, in terms of decision versus the

probable event, and its pay-off value, then it is possible to construct a matrix of the decision

versus the events described by a value for each combination. The manager can then apply the

criteria such as the maximum expected value, the maximum profit and the minimum loss or the

minimum regrets.

The method of decision tree can be adopted, if the decision making situation can be described

as a chain of decisions. The process of the decision making is sequential and a chain of decisions

achieves the end regrets.

The use of both pay-off matrix and the decision tree requires a probabilistic knowledge of

the occurrence of events. In many situations this knowledge is not available and the MIS has to

provide the information support in this endeavor.

Optimization techniques

Linear Programming, Integer Programming, Dynamic Programming, Queuing Models, Inventory

Models, Capital Budgeting Models and so on are the examples of optimization methods. These

methods are used in cases where decision making situation is closed, deterministic and requires

optimizing the use of resources under conditions of constraints. To handle these situations,

software packages are available. These methods are termed operational research (OR) methods.

All the OR methods attempt to balance the two aspects of business under conditions of

constraint. In the linear programming models, the use of resources versus demand is balanced to

maximize the profit. In the Inventory Model, the cost of holding inventory versus the cost of

procuring the inventory is balanced under the constraint of capital and meeting the demand

requirement. In the Queuing Model, the cost of waiting time of the customer versus the cost of an

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idle time of the facility is balanced under the constraint of investment in the facility and the

permissible waiting time for the customer. In the capital budgeting model, the return on

investment is maximized under the capital constraint versus the utility of the investment. The

MIS supports the formulation of a model, and then using it for the decision making.

The payoff analysis

When all the alternatives and their outcomes are not known with certainty, the decision is made

with the help of payoff analysis. The payoff matrix is constructed where the rows show the

alternatives and the columns show the conditions or the states of nature with the probability of

occurrence. The intersection of column and row shows the value of an outcome resulting out of

the alternative and the state of the nature. A typical payoff matrix in pricing decision is as given

in Table 6.1.

Table 6.1 Payoff Matrix I

No change Your decision Competitor’s Increase Decrease

probability 0.50 0.20 0.30

Expected

gain

No change in the price

Increase the price

Decrease the price

For example, if the decision chose is no change in the price and the competition also does not change the price, then your gain is ‘4’. The decision is taken by choosing that decision alternative which has the maximum expected value of the outcome. Since the expected value in case of the third alternative is the highest; the decision would be to decrease the price. The concept of utility relates to the money value considered by the decision-maker. The utility is measured in terms of utile. Money has a value of a different degree to different decision makers depending upon the amount, and also the manner in which it is received. If rupee one is equal to one utile, then Rs 100 million is not 100 million utile but could be much more. The utile value will be different if the money is received in one lot as against in parts in several years. The utility function is different for different decision makers. The utile value of utility has an influence on the risk-taking the ability of the decision-maker. A well-placed manager with a sound business will tend to gamble or take more risk, than a manager not so well placed in the business. In such decision-making situations, the monetary values of the outcomes are replaced by the utile values, suitable to the decision maker’s utility function. In our example of pricing, if we replace the values by utiles, the matrix would be as given below in 

Decision Competitor’s No change Increase Decrease choice Expected utility pdfMachine - is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA probability 0.50 0.20 0.30 No change in the price Increase the price Decrease the price Since the highest value of utility is 220.80 utiles, the decision would be to increase the price. Decision tree analysis When a decision-maker must make a sequence of decisions, the decision tree analysis is useful in selecting the set of sequence decisions. The method of analysis can be explained by an example. The decision tree is drawn in Fig. 6.2 with the help of symbols.

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Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - the USA In this decision situation, there are two decision points and six paths as given below. The path which given maximum cash flow is the right decision path. The cash flow values are under. Path Exp. Cash flow ABC -- Collaboration ABD -- No Collaboration ACEH -- Collaboration Ist Phase, Collaboration IInd Phase ACEI -- Collaboration Ist Phase, No Collaboration IInd Phase ACFJ -- No Collaboration Ist Phase, Collaboration IInd Phase ACFK -- No Collaboration Ist Phase, No Collaboration IInd Phase 

The problem is whether to expand now with a large capacity or to invest now in small capacity and make a decision of expansion after one year with the help of collaboration or without collaboration under certain demand conditions. Since the highest expected cash flow path is ACEH, the decision is to invest in a small capacity in the Ist phase and invest in the remaining capacity in the second phase with the assistance of the collaboration. The decision tree approach is useful when you visualize a series of decisions having alternative paths with the associated probabilities and the cash flows for each path for more than one year.

6.3 BEHAVIOURAL CONCEPTS IN DECISION MAKING

A manager, being a human being, behaves in a peculiar way in a given situation. The response of one manager may not be the same as that of the two other managers, as they differ on the behavioral platform. Even though tools, methods, and procedures are evolved, the decision is many times influenced by personal factors such as behavior. The manager differs in their approach towards decision making in the organization, and, therefore, they can be classified into two categories, viz., the achievement-oriented, i.e., looking for excellence and the task-oriented, i.e., looking for the completion of the task some-how. The achievement-oriented manager will always opt for the best and, therefore, will be enterprising in every aspect of the decision making. He will endeavor to develop all the possible alternatives. He would be scientific, and, therefore, more rational. He would weigh all the pros and then conclude. pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - the USA The manager’s personal values will definitely influence ultimately. Some of the managers show nature of risk avoidance. Their behavior shows a distinct pattern indicating a conservative approach to decision making a path of low risk or no risk. Further, even thought decision making tools are available, the choice of the tools may differ depending on the motives of the manager. The motives are not apparent, and hence, are difficult to understand. A rational decision in the normal course may turn out to be different on account of the motives of the manager.

The behaviors of the manager are also influenced by the position he holds in the organization. The behaviors are influenced by fear and anxiety that the personal image may be tarnished and the career prospects in the organization may be spoiled due to defeat or failure. The managerial behavior, therefore, is a complex mix of the personal values, the atmosphere in the organization, the motives and the motivation, and the resistance to change. Such behavior sometimes overrides normal rational decisions based on business and economic principles. The interplay of different decision making of all the managers in the organization shapes up organizational decision making. The rationale of the business decision will largely depend upon the individuals, their positions in the organization and their interrelationship with other managers. If two managers are placed in two decision making situations, and if their objectives are in conflict, the managers will arrive at a decision objectively, satisfying individual goals. Many times, they may make a conscious decision, disregarding rationality required in a business decision to meet their personal goals and to satisfy their personal values. If the manager is enterprising, he will make objectively rational decisions. But if the manager is averse to taking the risk, he will make a decision which will be subjectively rational as he would act with limited knowledge and also be influenced by the risk averseness. Thus, it is clear that if the attitudes and motives are not consistent across the organization, the decision-making process slows down in the organization. 6.4 ORGANISATION DECISION MAKING An organization is an arrangement of individuals having different goals. Each individual enjoys different powers and rights because of his position, function, and importance in the organization. Since there is an imbalance in the power structure, the different individuals cannot equally influence the organizational behavior, the management process and the setting of business goals. Ultimately, what emerges is a hierarchy of goals which may be conflicting, self-defeating and inconsistent.

The corporate goals and the goals of the departments/divisions or the functional goals, may a time, are in conflict. If the organization is a system, and its departments/divisions or functions are its subsystems, then unless the system’s objective and the subsystem’s objectives are aligned and consistent with each other, the corporate goals are not achieved. pdfMachine - Is a pdf writer that produces quality PDF files with ease!

Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - the USA In case of inconsistent goals, the conflict in the organization increases, affecting the organization’s overall performance. The organizational decision making should help in the resolution of such conflicts. Otherwise, the organization suffers from indecision. The organizational behavior theory provides different methods for resolution of avoiding such conflicting goals as explained in Table 6.3 Methods of Conflict Resolution Method Explanation Example Allowing local rationality in the setting of goals. Permission to set goals which can be achieved with an acceptable decision-making rule and systems. Permission to achieve the goals in a sequential manner. Where the functional interdependence is minimum and the goals/objectives/targets do not significantly influence the corporate goals Where there is functional dependence, to set local goals which will not adversely affect the goals of dependent functions. If the goals are conflicting, they are resolved in a sequential manner one at a time. It is a deliberate decision to ignore the conflicting goals within bounded rationality. Security, Time office functions, Legal, Commercial, Administrative functions. Production versus Sales versus Materials functions can evolve decision rules to meet the local goals and affect the goals of the dependent functions, or corporate goals. Maximization of profit, quality, level, customer satisfaction, leadership image, etc. Dealing with Uncertainty The organizations perform in an environment of uncertainty. The market uncertainty, the price fluctuations, the changes in the Government policy, not knowing the moves of the competitors, the technology changes are some of the factors which make the business environment uncertain. Organizational behavior will, therefore, be towards minimizing the risk in decision making. The trend will be for risk avoidance with the available information support. The organization will vote for a decision which has a 90 percent chance of earning Rs 1 million as against a decision which has a 10 percent chance of earning Rs 10 million. Organizational behavior in decision making tends to avoid risk and minimize cost. The methods for dealing with uncertainty are given in Table 6.4.

Table 6.4 Methods of Dealing with Uncertainty Method Explanation Example Decide for a limited short If the environment is reviewed at Purchasing of smaller quantity more pdfMachine - is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA period and make a provision to correct the decision. Negotiated decision making with limited liability. short intervals, the uncertainty can be reduced providing a chance to correct the previous decision. To reduce the impact of the risk, the uncertainty is converted to certainty by making decisions binding, through the negotiated contracts. frequently. Adopting the policy of enhancement in place replacement by new plants and equipment. International price agreements, supply assurances and sharing the risks. Organisational Learning

The organizational decision making improves with learning by acquiring additional knowledge and experience, the training and development, the experience of implementation and so on. Learning provides strength to review the goals and the objectives, and allows setting them more correctly. It also helps to revise and improve the decision rules. The improvements are carried out by adopting the policy of modernization, rationalization and the application of the management science. The process begins with small changes in the existing policy and guidelines. Then it slowly comes to the changes in the strategic decision and planning. Further, it revamps the decision rules and also provides a systems approach to decision making. As time progresses, the organization may have a new set of goals and objectives. It may go through a process of rationalization of goals and objectives across the company. The organization may take a fresh look at the alternatives, outcomes, implementation, methods, procedures, and systems. Adopting such methods, the organization builds skills and capabilities in the management. It creates the infrastructure to make all the decisions rational, which can be implemented effectively and efficiently, to achieve the objectives.

6.5 MIS AND DECISION MAKING CONCEPTS

It is necessary to understand the concepts of decision making as they are relevant to the design of the MIS. The Simon model provides a conceptual design of the MIS and decision making, wherein the designer has to design the system in such a way that the problem is identified in precise terms. That means the data gathered for data analysis should be such that it provides diagnostics and also provides a path to bring the problem to surface. In the design phase of the model, the designer is to ensure that the system provides models for decision making. These models should provide for the generation of decision alternatives, test them and pave way for the selection of one of them. In a choice phase, the designer must help to select the criteria to select one alternative amongst the many. The concept of programmed decision making is the finest tool available to the MIS designer, whereby he can transfer decision making from a decision maker to the MIS and still retain the responsibility and accountability with the decision maker or the manager. In pdfMachine - is a pdf writer that produces quality PDF files with ease!

Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA case of non-programmed decisions, the MIS should provide the decision support systems to handle the variability in the decision-making conditions. The decision support systems provide a generalized model of decision making. 

The concept of decision making systems, such as the closed and the open systems helps the designer in providing design flexibility. The closed systems are deterministic and rule-based; therefore, the design needs to have limited flexibility, while in an open system, the design should be flexible to cope up with the changes required from time to time. The methods of decision making can be used directly in the MIS provided the method to be applied has been decided. A number of decision-making problems call for optimization, and OR models are available which can be made a part of the system. The optimization models are static and dynamic, and both can be used in the MIS. Some of the problems call for competitive analysis, such as a payoff analysis. In these problems, the MIS can provide the analysis based on the gains, the regrets and the utility. The concepts of the organizational and behavioral aspects of decision making provide an insight to the designer to handle the organizational culture and the constraints in the MIS. The concepts of the rationality of a business decision, the risk averseness of the managers and the tendency to avoid uncertainty makes the designer conscious about the human limitations and prompts him to provide support in the MIS to handle these limitations. The reliance on organizational learning makes the designer aware of the strength of the MIS and makes him provide the channels in the MIS to make the learning process more efficient. The relevance of the decision making concepts is significant in the MIS design. The significance arises out of the complexity of decision making, the human factors in the decision making, the organizational and behavioral aspects, and the uncertain environments. The MIS design addressing these significant factors turns out to be the best design. pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA __________REVIEWQUESTIONS 

1. Why does the decision making situations arise? 

2. Identify few decisions in your life, where the outcomes were known with certainty, risk

And uncertainty.

3. Why do two people disagree on the choice of a decision? Is it then better to resort to?

Programmable decision making?

4. Why is more time spent in problem analysis and problem definition as compared to the

Time spent on decision analysis?

5. If a person is indecisive, is it due to lack of information support or some human factors

Or both?

6. Why does the decision maker resort to bounded rationality in a decision-making situation? Can a decision be called as right or wrong? What is the measure of the correct decision?

7. Can you automate the process of decision making? The answer is ‘Yes’ and ‘No’. Explain. What best must be aimed at?

8. Explain the role of a model in problem-solving. Explain the process of abstraction used

In constructing the model.

9. List the different criteria which can be used in decision making.

10. Can the quality of decision making be improved? Explain how it can be improved. pdfMachine - Is a pdf writer that produces quality PDF files with ease!

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CHAPTER-7 Information

7.1 INFORMATION CONCEPTS

The word ‘information’ is used commonly in our day to day working. In MIS, information has a precise meaning and it is different from data. The information has a value in decision making while data does not have. Information brings clarity and creates an intelligent human response in the mind. In MIS a clear distinction is made between data and information. Data is like raw materials while the information is equivalent to the finished goods produced after processing the raw material. The information has certain characteristics. These are: Information  Improves representation of an entity  Updates the level of knowledge.  Has a surprising value.  Reduces uncertainty.  Aids in decision making. The quality of information could be called good or bad depending on the mix of these characteristics. A sales report shows in Table 7.1 will highlight this point. It can be noted in the above example that sales data is processed with the budget data and further some results are computed, providing information about an exceptional nature that is the sale of new product in the total sales. The sales data progressively becomes information when processed with other data such as the budget and the new product sales. Devis and Olson define information as data that has been processed into a form that is meaningful to the recipient and is of real or perceived value in the current or the prospective actions or decisions of the recipient. Data is defined as groups of non-random symbols in the form of text, images or voice representing quantities, actions and objects. Table 7.1 Sales information Particulars of sales data (Rs. Lakhs) Characteristics Sales 10 / day Represents sales/day Budgeted sales 15 / day Represents budget / day Cumulative sales 510 / 60 days Updates the knowledge about sales as on date. Cumulative budget 600 / 60 days Makes the information meaningful by comparison with budgets and has a surprise value as it is significantly below the budget. The ratio of sales performance 85 % 15 percent less than the budget. Represents To the budget. Performance of Sales vs. Budget. Sales of new products 80 / 60 days Reduces the uncertainty of sales of new product as expected sales were only Rs 70 lakhs. pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - the USA Whether an entity is a data or information, it must be transferred through communication from the ‘Source’ to the ‘Destination’ without loss of content. 

Fig. 7.1 Conceptual Model of Communication The above model of communication is used in the MIS. The MIS is equivalent to the transmitter which provides information and sends through reports (channel) to the various receivers, which is decoded or interpreted by the receiver at the destination. The poor quality of information due to various factors would create confusion and misunderstanding, which is equivalent to a ‘Noise’ and a ‘Distortion’ in the communication model. A good MIS communicates the information without noise and distortion to the user. Information Presentation Presentation of the information is an art. The data may be collected in the best possible manner and processed analytically, bringing a lot of value in the information; however, if it is not presented properly, it may fail to communicate anything of value to the receiver. The degree of communication is affected by the methods of transmission, the manner of information handling and the limitations and constraints of a receiver as the information processor and the organization as the information user. The methods used for improving communication are summarization and message routing. The concept of summarization is used to provide information which is needed in the form and content. 

The information can be summarized in a number of ways as shown in 7.2 Information Summarization Key for summarization Focus of information Example Management position Management functions Levels Responsibility Performance, Goals, Targets General Manager, Divisional Head Marketing, Materials... Production Top SOURCE TRANSMITTER ENCODER CHANNEL RECEIVER DECODER DESTINATION NOISE AND DISTORTION pdfMachine - is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - the USA in the organization Selective on condition. Relevance to the level Exceptions Middle Operations. Only those products, Where the sale is below the budget. The principle behind summarization is that too much information causes noises and distortions, i.e., confusion, misunderstanding and missing the purpose. The summarization suppresses the noise and the distortions. Another method of improving the degree of communication is through message routing. The principle here is to distribute information to all those who are accountable for the subsequent actions or decisions in any manner. That is if the information is generated with a certain purpose for a primary user, then such information may have secondary purposes to some other users in the organization. This is achieved by sending the copies of the reports or documents to all the concerned people or users. The principle of the message routing achieves the spread of information to the appropriate quarters. Knowledge is a power and an intelligent person in the organization can misuse this power to achieve personal goals undermining the functional and organizational goals. This tendency should be curbed. Further, the decision maker may call for the information on the grounds that, just in case required, he should readily have it. Apart from the misuse of information, it has an impact on the cost of information processing. In order to curb the misuse of information, control is exercised on the content of information and its distribution. 

The methods shown in Table 7.3 are available for use with discretion. Bias in information While choosing the appropriate method of communicating information care has to be taken to see that is not biased. For example, while using the techniques of classification or filtering the information, it should not happen that certain information gets eliminated or does not get classified. That is, a deliberate bias in covering certain information is to be avoided. This bias enters because people try to block sensitive information which affects them. To overcome this problem, a formal structure of the organization should be adopted and the type of information and its receiver should be decided by the top management. Many times the data and the information are suppressed but the inferences are informed, with no or little possibility of verification or rethinking. In this case, one who draws inferences may have a bias in the process of collection, processing, and presentation of data and information. Though the deliberate enforcement of the inference on the receiver avoids a possibility of the multiple inferences, in this case, processor’s bias is forced on the pdfMachine - is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA receiver. For example, organizations have departments like Corporate Planning, Market Research, R and D, HRD and so on, which collect the data and analyze it for the company and communicate the inferences. In all these cases personal bias, organizational bias, and management bias may be reflected in the entire process of collection processing, and communication inference.

Table 7.3 Methods to Avoid Misuse of information

Method Reason Example Delayed delivery of information Change in the format and content of the report Suppression and filtering of the information of confidential and sensitive nature Suppress the details and references of data and information Truncated or lopsided presentation A possibility of immediate action or decision is reduced. It will have only a knowledge value Provide only that information which may be needed, hence the misuse is averted. To avoid the risk of exposure and the misuse of information for achieving the undesirable goals. Make it difficult to collect, and process the data at the user end to meet the personal needs of information. Make it difficult to read through the information and avoid its probable misuse. Sales report to the sales representative or a copy of an invoice to the sales representative. Sales information to operations management, sales versus target for the middle management sales with trend analysis to the top management. The price, the cost information. Drawing and design information. Statistical reports with no references. A focus on high-value sales and production and suppress the details.

The presentation of the information will generate a bias and may influence the user. For example, if the information is presented in alphabetical order and if it is lengthy, the first few information entities will get more attention. If the information is presented with a criteria of exception, the choice of exception and deviation from the exception creates a bias by design itself. For a quick grasp, the information is presented in a graphical form. The choice of scale, the graphic size and the colour introduced a bias in the reader’s mind. The base, which may creep in inadvertently because of the information system design, can be tackled by making the design flexible, so far as reporting is concerned. Allow the manager or the decision maker to choose his classification or filtering criteria, the scope of information, the method of analysis and the presentation of inference. However, somewhere balance needs to be maintained between the flexibility of the design and the cost, and its benefits to the managers. Disregarding the bias in information, it must have certain 

Table 7.4 Attributes of the information

pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA Attribute Explanation The accuracy in representation The form of presentation The frequency of reporting The scope of the collection The time scale The relevance to decision making Complete for the decision considerations The timeliness of reporting The test of accuracy is how closely it represents a situation or event. The degree of precision will decide the accuracy in representation. Forms are qualitative or quantitative, numeric or graphic, printed or displayed, summarized or detailed. How often the information is needed? How often it needs to be updated. The coverage of information in terms of entities, area, and range, and the interest was shown by the recipient of the decision maker. Internal form organization or external to the organization. It may relate to the past, the current and the future and can cover the entire time span. The information has relevance to a situation and also to a decision making. The irrelevant information is data. The information which covers all the aspects of the decision situation by way of the scope, transactions and the period are complete.

The receipt of the information on time or when needed is highly useful. The information arriving late loses its utility as it is outdated. Redundancy is the repetition of the parts or messages in order to circumvent the distortions or transmission errors. The redundancy, therefore, sometimes is considered as an essential feature to ensure that the information is received and digested. In MIS the redundancy of data and information, therefore, is inevitable on a limited scale. Its use is to be made carefully so that the reports are not crowded with information.

7.2 INFORMATION: A QUALITY PRODUCT Information is a product of data processing. Even if we take care of the aspects discussed in the above section, the manager will determine the quality of the information based on the degree of motivation it provided for action, and the contribution it provided for effective decision making. The quality of information is high, if it creates managerial impact leading to attention, decision and action. The quality of information can be measured on the four dimensions, viz., utility, satisfaction, error and bias. pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - the USA The utility dimension has four facets- the form, the time, the access and the possession. If the information is presented in the form the manager requires, then its utility increases. If it is available when needed, the utility is optimized. If the information is easily and quickly accessible through the Online Access System, its utility gets an added boost. Lastly, if the information is possessed by the manager who needs it, then its utility is the highest. Many of the organizations suffer from the possessive nature of the managers access difficult for the other users of the information. Improving quality through increasing a utility means an increase in the cost. The balance, therefore, is to be maintained between the cost and the utility. The concept of the utility of the information is subjective to the individual manager, at least in terms of the form, time and access. Since in the organization there are many users of the same information, the subjectiveness would vary. Therefore, the one common key for measuring the quality could be the satisfaction of the decision-maker. The degree of satisfaction would determine the quality of the information. If the organization has a high degree of satisfaction, then one can be safe in saying that information systems are designed properly to meet the information needs of the managers at all the levels. An error is the third dimension of the information. The errors creep in on account of various reasons, namely:

1. An incorrect data measurement

2. An incorrect collection method

3. Failure to follow the prescribed data processing procedure

4. Loss of data or incomplete data

5. Poor application of data validation and control systems

6. A deliberate falsification

Erroneous information is a serious problem because the decision-maker cannot make the adjustments as he is not aware of it in terms of the location and quantum of the error. To control errors, it is necessary to follow the methods of systems analysis and design. The approach should be that the error should be prevented, failing that they should be detected, and if not, they should be controlled. The processing of data for information processing should be allowed only after a thorough validation of the transactions and the contents, as a whole, on a logical plane. Care should be taken that the information is processed after ensuring the correctness of the data in terms of the time and the number of the document, and the transactions in the period. The data should be checked against the master data wherever possible and balance should be controlled through logical processing by using rules, formulae, the principles, etc., which will ascertain the correctness of the contents. If the information is processed out of biased data it will have a bias. The procedure of communicating the information should be such that the system is able to detect the degree and the nature of the bias and correct the information accordingly. pdfMachine - Is a pdf writer that produces quality PDF files with ease!

Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - the USA The computer system and programmers are prone to errors because of the corrections, modifications and changes required by the decision-makers. These errors lead to the wrong processing. A systematic effort should be made to keep the computer system document up-to-date, for guidance to the user of the system. The measures of auditing, the use of test data and conducting a physical audit of the record versus the reality would help considerably to control the errors arising out of wrong processing. Parameters of Quality The parameters of good quality are difficult to determine, however, the information can be termed as of good quality if it meets the norms of impartiality, validity, reliability, consistency and age. The quality of information has another dimension of utility from the user’s point of view. The users being many, this is difficult to control. Therefore, if one can develop information with due regards to these parameters, one can easily control the outgoing quality of the information with the probable exception of the satisfaction at the user’send. Impartiality Impartial information contains no bias and has been collected without any distorted view of the situation. The partiality creeps in, if the data is collected with a preconceived view, a prejudice, and a pre-determined objective or a certain motive. 

The validity of the information relates to the purpose of the information. In other words, it is the answer to the question-dose the information meet the purpose of decision making for which it is being collected? The validity also depends on how the information is used. Since the information and the purpose need not have one to one correspondence, the tendency to use it in a particular situation may make the information invalid. For example, if the quality of the manufactured product is deteriorating and it is decided to select the causes of poor quality, then one must collect all the possible causes which may affect the quality. Quality is a function of the raw material, the process of manufacture, the tools applied, the measures of the quality assessment, the attitude of the people towards the control of quality. However, if the information collected talks only about raw materials and the process of manufacture, then this information is not sufficient and hence it is not valid for all the decisions which are required to control the quality. Reliability pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - the USA It is connected to the representation and the accuracy of what is being described. For example, if the organization collects the information on the product acceptance in the selected market segment, the size of the sample and the method of selection of the sample will decide the reliability. If the sample is small, the information may not give the correct and a complete picture and hence it is not reliable. The reliability is also affected by the right source. Consistency

The information is termed as inconsistent if it is derived form a data which dose not have a consistent pattern of period. Somewhere, the information must relate to a consistent base or a pattern. For example, you have collected the information on the quantity of production for the last twelve months to fix the production norms. If in this twelve months period, the factory has worked with variable shift production, the production statistics of the twelve months for comparison is inconsistent due to per shift production. The consistency can be brought in by rationalizing the data to per shift production per month. The regularity in providing the information also helps in assessing the consistency in the information. Age If the information is old, it is not useful today. The currency of the information makes all the difference to the users. If the information is old then it does not meet any characteristics of the information viz., the update of knowledge, the element of surprise and the reduction of uncertainty, and the representation. Maintaining these parameters at a high degree always poses a number of problems. These problems are in the management of the operations, the sources, the data processing, and the systems in the organization. A failure to maintain the parameters to a high degree affects the value of the information to the decision-maker. 7.3 CLASSIFICATION OF THE INFORMATION The information can be classified in a number of ways provide to a better understanding. John Dearden of Harvard University classified information in the following manner: 

Action versus no-action information

The information which induces action is called action information. The information which

communicates only the status of a situation is no-action information. No Stock’ report calling a purchase action is an action information but the stock ledger showing the store transactions and the stock balances is No-action information. Recurring versus non-recurring information pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - the USA The information generated at regular intervals is recurring information. The monthly sales reports, the stock statements, the trial balance, etc. are recurring information. The financial analysis or the report on the market research study is non-recurring information. Internal versus external information

The information generated through the internal sources of the organization is termed as internal information, while the information generated through the Government reports, the industry surveys, etc. are termed as external information, as the sources of the data are outside the organization. The timing information, the recurring information and the internal information are the prime areas for computerization and they contribute qualitatively to the MIS. The timing and accuracy of the action information are usually important. The mix of the internal and external information changes, depending on the level of the management decision. At the top management level, the stress is more on the external information and at the operational and the middle management level; the stress is more on the information. 

Figure 7.2 shows the source and kind of information required vis-à-vis of management in the organization. TOP MGT MIDDLE MGT OPERATIONAL MGT ORGANISATION STRUCTURE External Source of Information Internal Low Structured Information High

Fig. 7.2 Organisation and Information

The information can also be under, in terms of its application. Planning information Certain standards, norms and specifications are used in the planning of any activity. Hence, such information is called planning information. The time standards, the operational standards, the design standards are the examples of the planning Information.

Control information Reporting the status of activity through a feedback mechanism is called the control information. When such information shows a deviation from the goal or the objective, it will induce a decision or an action leading to control. Knowledge information A collection of information through the library reports and the research studies to build up a knowledge base as an information source for decision making is known as Knowledge pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA information. Such a collection is not directly connected to decision making, but the need for knowledge is perceived as a power or strength of the organization.

The information can also be classified based on its usage. When the information is used by everybody in the organization, it is called the organization information. When the information has a multiple-use and application, it is called the database information. When the information is used in the operations of a business it is called the functional or the operational information. Employee and pay-roll information is organization information used by a number of people in a number of ways. The material specifications or the supplier information is database stored for multiple users. Such information may need security or access control. Information like sales or production statistics is functional, meeting the operational needs of these functions.

7.4 METHODS OF DATA AND INFORMATION COLLECTION

Several methods are available for the collection of data. The choice of method will have an impact on the quality of information. Similarly the design of data collection method also decides the quality of data and information. The methods of data collection and processing become a part of the MIS. The various methods of data collection are explained in Table 7.5. An awareness of these methods is essential to the manager. Further, he should also understand the potential problems of bias, currency, and the fact versus the opinion in the various types of methods. The observation, the experiment, the survey, and the subjective estimation are the methods chosen for data collection and information about a specific problem, while the remaining methods are chosen to collect data on a routine basis without any particular problem whatsoever.

7.5 VALUE OF THE INFORMATION 

The decision theory suggests the methods of solving the problems of decision making under certainty, risk, and uncertainty. A decision-making situation is of certainty when the decision-maker has full knowledge about the alternatives and its outcomes. This is possible when perfect information is available. Therefore, the information has a perceived value in terms of decision making. The decision-maker feels more secured when additional information is received in case of decision making under uncertainty or risk. The information is called perfect information, if it wipes out uncertainty or risk completely. However, perfect information is a myth. The decision theory stipulates that the value of the additional information is the value of the change in the decision behavior, resulted by the information, less the cost of obtaining the information. 

If the additional information does not cause any change in the pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA decision behavior then the value of the additional information is zero. The value of the additional information making the existing information perfect (VPI) is VPI = (V2 – V1) – (C2 – C1) Where V is the value of the information and C is the cost of obtaining the information. V1 And C1 relate to one set of information and V2, C2 relate to the new set. If the VIP is very high, then it is beneficial to serve the additional information need. Table 7.5 The Methods of Data and information Collection Method Example Comment Observation Experiment Survey Subjective estimation Transaction Processing Purchased from outside Publications Government agencies The first-hand knowledge avoids a response bias. Accuracy of observation will decide the response. It is dependent on the observer and is influenced by bias. The information on a specific parameter can be obtained through control over variables. The quality of information depends on the design of the experiment. One time. Enables to cover the interested population on specific aspects. The quality of the questionnaire will decide the quality of the information. 

In the absence of all the three above, the expert opinions may be called to collect the information. The data exists but needs a processing and integration for reporting. Easily available at a price. May be expensive and may have a bias depending on the source. Low cost but may project or emphasis one view or the other. Information may be lopsided. Available but may not be directly useful not knowing the details of the collection analysis and is usually not the latest. Visit to the customer for assessing the customer complaints. A visit to assess the accidental damage... Assessing the yield of a new fertilizer by a design of the control experiment. Assessing the market response to a

new packaging through test marketing. Market survey, opinion polls, and census. Data pertaining to future like the alternate source of energy, the lifestyle in the 21st century.

Ledgers, payroll, stock statements, sales reports. Databases on the specific subject, research studies. Market and technology studies. The government publications, the industry publications, the institutional publications such as NCL, NCACER, BANKS, UNO, the various public forums The Reserve Bank of India publications. The Tax publications, the reports, and findings. A manager is faced with the problem of decision making under uncertainty or risk conditions if he does not know the perfect information about the decision situation. Further his ability to generate decision alternatives owing to the imperfect information of the situation and also the expected events in the future is limited. In other words, given a set of possible decisions, a decision-maker will select one on the basis of the available information. If the new information causes a change in the decision, then the value of the new information is the difference in the value between the outcome of the old decision and that of new decision, less the cost of obtaining the new information.

pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - the USA It may be noted that the information has value only to those who have the background knowledge to use it in a decision. The experienced manager generally uses the information most effectively but he may need less information as experience has already reduced uncertainty for him when compared to a less experienced manager. In MIS, the concept of the value of information is used to find out the benefit of perfect information and if the value is significantly high, the system should prove it. If the value is insignificant, it would not be worth collecting the additional information. The decisions at the operational and the middle management level are such that the value of the additional or new information is low, while at the higher levels of the management, the decision being mainly strategic and tactical in nature, the value of additional information is very high. Apart from the monetary value of information, it has a value which is to be measured as strength in promoting the functions of the management. Some information has the strength of motivating the manager to think in futuristic terms. Some information has the strength of confirming the beliefs or understanding the business process. 

It also reinforces the right and wrong of a decision-making process that the manager is following. 7.6 GENERAL MODEL OF A HUMAN AS AN INFORMATION PROCESSOR A manager or a decision maker uses his sensory receptors, normally eyes and ears, to pick up information and transmit them to the brain for processing and storage. The result of this processing will be a response which may be a decision, action or at least recognition of the event for future use. Hence, a manager can be said to be an information processor. While processing the information for a managerial response, the manager also uses accumulated knowledge from memory. The capacity of a manager to accept and process inputs to produce output is variable and limited. That is why it is observed that all the managers of the same level do not accept or absorb all the inputs which the information may provide. The limitation arises sometimes on account of the information overload which is external to the manager. 

This is a case of too much information or extra information creating a problem for the user of the information to sort out the relevant from the irrelevant or the appropriate from the inappropriate. The manager in such a situation adopts the method of filtering the information. Filtering is a process whereby a manager selectively accepts that much input, which his mental ability can manage to process. The methods of filtering, which the information processor adopts, are mentioned in Table 7.6 Methods of Filtering Method Example Comment pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA The frame of reference by using knowledge and experience. Universally acclaimed normal decision procedure. Select data babes on proven methods. Period, products, market segments, decision rules or procedures. Break-even analysis, methods of fixing inventory levels. Pricing, the introduction of a new product, selection of technology. Critical decisions. Ignore the past data, consider only some products. Select only the relevant market segments. Select that data whereby a specific decision rule can be applied. Ignore the intangible factors. Ignore the demand variation based on experience. Consider only the important factors affecting the decision. Use the known

decision models. The filtering process blocks the unwanted or the inconsistent data or the data which does not match the frame of reference. An inexperienced manager or a less knowledgeable manager through filtering may omit data, distort data responses and, therefore, may draw incorrect inferences. 

The information processor establishes the filters based on experience, knowledge, and now-how. The choice of filters may be changed due to stress, urgency of decision making and the confidence in a particular method of decision making. Many a times a processor is required to perceive process and evaluate probabilistic information. The processor may be deficient in the intuitive understanding of the information, in the ability to identify the correlation and the causality, and in the capability for integrating the information.

An experienced manager is a skillful information processor where he is able to change the frame of reference or select the decision-making tool for the available information. He is also in a position to add more knowledge base information to the current information to increase the value of the information. A generalized model of information processor is shown in Fig. 7.3 Fig. 7.3 Generalized Model of Information Processor. Managers’ individual Differences

BRAIN USE OF STORED KNOWLEDGE AND EXPERIENCE INPUTS FROM EYES ARTS, FILTERING AND BLOCKING MENTAL PROCESSING APPLICATION SELECTION, MANIPULATION OUTPUTS DECISION, ACTION, REGISTRATION

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available for the decision making. The managerial ability, skills, and tools play a considerable role in the cognitive style of the manager. These styles affect the information system design and the satisfaction of the manager. An excellent review of research on the individual differences and the MIS can be found in Zmud, “Individual differences and the MIS success” , Management Science, October 25, 1979. The reasons for individual differences are given in Table 7.7. 7.7 SUMMARY OF INFORMATION CONCEPTS AND THEIR IMPLICATIONS Understanding of information concepts is very important and relevant to the system designer and the information user. The concepts are summarized as follows. 

Filtering The system designer should provide an appropriate filtering mechanism so that the information is not suppressed and relates to the frame of reference of the user. Care should be taken in the process that certain valid information does not get blocked or overemphasized. A filtering process is used to select and suppress the information. Simon model and its application The designer should attempt to provide such information that it clearly defines the problem space and also takes cognizance of the user’s knowledge. The design of the system should be such that an appropriate mix of these two sources should yield a decision, leading to a solution of the problem. Codes and representation The system designer should evolve such a ding system that is easy for the users of the code to interpret. Secondly, the designer should report the data in such a manner that the user can grasp it quickly. 

Highlighting The designer should the information in such a way that the significant differences between the targets and the achievements, the standards and the performance, the budgets and the actual, are highlighted so that they become easily noticeable by the user without the search. Statistical analysis The designer should provide the information in such a way that the information not only represents something meaningfully but also aids in the statistical analysis by the user. The information should provide additional results such as variance, correlation, pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA coefficients, and futuristic estimates and give a measure of statistical significance for the user to consider while decision making.

Table 7.7 Reasons for Individual Differences Individual Differences Explanation Effect on information processing Examples Locus of control internal or external to the situation. Personal dogmatism. Risk propensity. Tolerance for ambiguity. Manipulative intelligence. Experience in decision making. Knowledge of the task, tools, and technology. The management level from lower to higher.

The degree of perception in assessing the control which is internal to the organization. The degree of faith in beliefs, opinions and past experience. The ability to take the risk. Level of clarity required in the information. The ability to read through the information. The ability to manipulate the data and information vis-à-vis the stored information and knowledge. Extent of experience at a particular level of decision making.

The extent of knowledge in the application of tools and technology. The nature of management decisions differs from lower to higher level More information gathering and analysis, if internal. Low dogmatism, then more information collection and processing. Higher, then more information gathering and analysis. Tight tolerance then more information collection and analysis. High ability, then less information and more self-analysis. High, then correct filtering of data and appropriate choice of the decision-making process. Higher, then less information relevant to and tools correct analysis. Higher, then the unstructured information a different analysis, and the use of the new decision models. Factual information at a lower level.

The production decisions, selection of tools and materials, etc. The pricing, advertising in

a competitive environment. The top management decision making in strategic planning. Manager constantly asking for more information. Experienced and skill full managers rely on manipulative intelligence. The managers with a wide experience in the different fields of management call for precise and less but pertinent information. The Technocrats scientists and managers of technology have definite information needs-based on tools, models, methods used for decision making. The top management decisions regarding expansion, and diversification and strategic business decisions.

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Format The designer should present the information in the form or format which is complete in all respects and in which all data is processed as per the frame of reference of the user. The user should not be required to do additional processing with other data set through the computer systems or mentally by using the data set from the memory. Referencing and adjustment The design should evolve a system in such a way that it covers the valid system boundaries and provides a reference to an acceptable point (the year, the product, the norm, the standard, the knowledge), giving a facility to make an adjustment to results or the us which the information provides.

Cognitive style Each user has his own style of resolving or reconciling his internal view and an understanding of the problems or environment versus the actually perceived or seen or as it exists. In line with his individual style, he also evolves a process of the decision making which is personal to him. The designer of the system should provide the information in such a manner that these individual styles are accommodated fully. Learning theory The designer should appreciate that the user inadvertently is learning through the information and is building his knowledge set. Hence the information should be such that the user is not overloaded with the supply of information which is already known to him. Feedback loop The designer should provide the information feedback loop so that user understands that the process of decision implementation is smooth and the result is evaluated with reference to the norms or the expectations, giving the user a sufficient motivation to change, amend or act.

The perceived value of data Some data or information may not have a value or importance in the current operations of the business but some time in the future or in a different context some value is perceived for the information. The designer would keep this data out of the current processing and reporting. However, the designer should provide a system whereby the user can have access to this unused data if required. Information absorption pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - the USA The designer should provide only that amount of information which the user is able to grasp and use. Any additional information, beyond the ability of the user’s absorption, will be ignored or go unnoticed without any response.

Individual differences The information needs of different managers will differ based on individual human processing ability and cognitive style. The designer should support all such needs effectively by making the separate information reports. The concept discussed here is very important and the system designer should take care of them while designing the data gathering and processing systems. The proper incorporation of this concept while designing the MIS would call for a thorough understanding of the business environment, the management process, the strengths and the weakness of the organization structure and the individual differences of the managers and their cognitive styles of solving the problem.

The system designer’s managerial ability of the MIS development and a higher relationship with the users of the information will help him steer through the system development task. Since the MIS is a blueprint for the information supply, if he can work on a plan with a vision and foresight and provide continuous training to the users, the designer will succeed in developing a near-perfect MIS for an organization. 7.8 ORGANISANISATION AND INFORMATION Management through decision making is a common feature to all the organizations. The management consists of a group of people who are organized at various levels with an assigned task, job and responsibility to achieve the goals. Depending upon the levels in the organization, the nature, and the complexity of the job is determined. These features are common to all the organizations whether they are in the field of business, education, health or social services, banks, Central Government bodies and so on. Since information has a role to play in all the organizations, the concepts are applicable to all of them. The people organization model may be designed on the basis of the functions, the products, the projects and the communication matrix and the information needs that are typical to each of them. The organization may be large or small, performing at one or multi locations and the information need is typical to all of them. 

It is, therefore, necessary to understand the use of the information, the nature of the information, the value of the information, the media and the structure of reporting with reference to the type and the level in the organization. The MIS should acknowledge the problems and difficulties in various methods of data gathering and their sources in the organization. Each of these methods has a bearing on the quality of the input data which will be processed by the MIS. The necessary checks and controls should be introduced to control the quality of the input data. The people organization, the business organization and the infrastructure of the organization has an influence on nature, the type and the quality of information.

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The perfect information which helps in converting a situation of uncertainty or risk to certainty is a myth and difficult to achieve. Since the information is related to the decision-maker, it is not possible to determine the exact nature and quantum of perfect information. The MIS design should find an optimum point where the cost and the

benefits are balanced.

7.9 MIS AND THE INFORMATION CONCEPT

The goal of the MIS should be to provide the information which has a surprising value and

which reduces the uncertainty. It should simultaneously build the knowledge base in the

organization by processing the data obtained from different sources in different ways.

The designer of the MIS should take care of the data problems knowing that it may contain bias and error by the introduction of high-level validations, checking and controlling the procedures in the manual and computerized systems. While designing the MIS, due regard should be given to the communication theory of transmitting the information from the source to the destination.

Special care should be taken to handle noise and distortion on the way to the destination. The presentation of information plays a significant role in controlling the noise and distortion which might interrupt while communicating information to the various destinations. The principles of summarization and classification should be carefully applied giving regard to the levels of management. Care should be taken in the process that no information is suppressed or overemphasized.

The utility of information increases if the MIS ensures that the information possesses the necessary attributes. The redundancy of the data and the information is inevitable ob a limited scale. MIS should use the redundancy as a measure to control the error in communication.

The information is a quality product for the organization. The quality of information as

an outgoing product can be measured on four dimensions, viz., the utility, the satisfaction, the error and the bias. The MIS should provide specific attention to these

quality parameters. A failure to do so would result in wasteful expenditure in the development of the MIS and poor usage of investment in the hardware and software.

The quality can be ensured if the inputs to the MIS are controlled on the factors of impartiality, validity, reliability, consistency, and age. pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA MIS should make a distinction between the different kinds of information for the purpose of communication. An action, decision-oriented information should be distinguished from a no-action/knowledge-oriented information. The information could be of the recurring type or an ad hoc type. The MIS also needs to give regard to the information used for planning, performance control, and knowledge database. A distinction between these factors will help make the decisions of communications, storage and also the frequency of reporting.

Since the decision-maker is a human, it requires recognizing some aspects of human

capabilities in the MIS design. These human capabilities differ from manager to manager

and the designer has to skillfully deal with them. The differences in the capabilities arise

on account of the perception in assessing the locus of the management control, the faith

and the confidence in the information versus knowledge, the risk propensity, the

tolerance for ambiguity, the manipulative intelligence, the experience in decision making

and management style.

The MIS design should be such that it meets the needs of the total organization. For

design considerations and for the operational convenience, the organization is divided

into four levels, viz., the top, the middle, the supervisory and the operational. The top

management uses the MIS for goal-setting and strategic planning, deals with key information of a higher degree of accuracy where the perceived value of the information is very high. As against this, the lowest level management and the operational management uses the MIS to know the status by calling information of the current period in detail where the perceived value of information is the lowest and it usually insists on getting the information in a fixed format.

The MIS design, therefore, should ensure the input data quality by controlling the data

for the factors, viz. impartiality, validity, reliability, consistency, and age. The data

processing and the decision making routines should be developed in such a manner that

the data is processed after thorough validation and checking, and the analysis thereof is

further reported to the various levels and individuals with due regard to the differences in

the individual management style and human capabilities.

Recognizing that the information may be misused if it falls into wrong hands, the MIS

thegn should have the features of filtering, blocking, suppressions and delayed delivery.

Since the MIS satisfies the information needs of the people in a particular the Organization, the design of the MIS cannot be common or universal for all the organizations. The principles of design and the use of the information concepts in design do not change but when it comes to the applications, the design has to give regard to the organization structure, the culture, the attitudes and the beliefs of the people and the strengths and weaknesses of the organization. The information concepts are shown in relation to the organization pyramid in Fig.

7.4. It explains, with reference to the level of management, the use of the MIS, the value

of information the nature of information and its reporting. pdfMachine - Is a pdf writer that produces quality PDF files with ease! Get yours now! “Thank you very much! I can use Acrobat Distiller or the Acrobat PDFWriter but I consider your product a lot easier to use and much preferable to Adobe's" A.Sarras - USA __________REVIEWQUESTIONS

1. Since your school days, you have purchased amber of books and your home library has

over two hundred books. Would you call this awareness of you as a data or information?

How would you call convert this awareness into information?

2. Explain why information has no specification but it has a character and value.

3. Can value of information be improved? Can information have a value which is arson

independent?

4. Explain the difference between data processing and information processing.

5. What is information overload? How does it occur? And how would you control it?

6. The trend now is to improve data quality, increase storage and offer distributed access; and

leave the processing of data to the user of the information. Why?

7. The character and value of information are linked to the people in the organization and to the management process in the organization. Explain.

8. Explain how quality of information improves the knowledge and decision making

the ability of the people.

9. Is it worth to invest in obtaining perfect information? Is it possible to specify the perfect information?

10. Take up a project in a known organization and identify the information in the owing

classes:

● Organizational,

● Strategic,

● Knowledge,

● Planning, and

● Control.

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CHAPTER-8 Development of MIS

8.1 DEVELOPMENT OF LONG RANGE PLANS OF THE MIS

Introduction

Any kind of business activity calls for long-range plans for success, the same being true

for MIS. The plan for development and its implementation is a basic necessity for MIS.

In MIS the information is recognized as a major resource like capital, time and capacity.

And if this resource is to be managed well, it calls upon the management to plan for it

and control it for the appropriate use in the organization. Most of the organization does

not recognize ‘Information’ as a resource. They have looked at information as one of the

many necessities for conducting the business activity.